UPDATE 2-MBIA to reinsure $184 bln FGIC-backed muni bonds

(Recasts, adds detail on reinsurance, information about Calyon deal)

NEW YORK, Aug 27 (Reuters) - MBIA Inc, (MBI.N) a bond insurer, said it agreed to take $184 billion of risk from municipal bonds from its wobbly competitor FGIC Corp, in a transaction that regulators said would strengthen both companies.

MBIA will receive $741 million of premiums from providing the reinsurance. The transaction will leave MBIA with more earnings and cash flow, according to a statement from the New York Department of Insurance, which brokered the deal.

MBIA's shares rose $1.22, or more than 10 percent, to $13.20 in after-hours trading. They had risen an additional $1.06 during regular trading.

FGIC has junk ratings from all three major credit rating agencies. This transaction will free capital, reserves and other resources for its remaining exposure, which is mainly in structured finance.

On a call, New York State Insurance Department officials said FGIC will retain responsibility for some of the municipal obligations, including debt issued by Alabama's Jefferson County, which has been at risk of default.

MBIA has plans to return to guaranteeing municipal bonds after being burned insuring repackaged mortgages in a bid to diversify and boost profits. It is setting up a new company to guarantee municipal bonds.

A spokeswoman said these plans will still go ahead and will be separate from the reinsurance its providing to FGIC's municipal bonds.

The agreement was approved on Wednesday by New York State Insurance Department's superintendent Eric Dinallo, although the details must still be submitted to the Insurance Department for approval.

Dinallo also approved a deal where FGIC unit FGIC UK paid Calyon $200 million to cancel a contract on a basket of distressed repackaged debt.

FGIC's owners include PMI Group (PMI.N), Blackstone Group (BX.N), Cypress Group and CIVC Partners LP. The company guaranteed about $313.9 billion of debt as of the end of 2007.

As a result of the MBIA transaction, the reinsured bonds will be rated as high as double-A, Dinallo said. (Reporting by Elinor Comlay; Editing by Andre Grenon)