* Accounting gain of about $1.6 bln

* 1st qtr net of $696.7 mln vs $2.4 bln year-ago loss

* Shares up 18 percent in extended trading (Adds detail on cash holdings in 13th paragraph, updates shares)

NEW YORK, May 11 (Reuters) - MBIA Inc (MBI.N: Quote, Profile, Research), once the largest U.S. bond insurer, reported Monday it had swung to a first-quarter profit after a huge year-earlier loss, sending its shares up 18 percent in after-hours trade.

MBIA said its quarterly results were helped by an accounting gain of about $1.6 billion, as the fair value of its obligations declined.

Shares of MBIA, which had closed down 3.5 percent in regular trading Monday at $6.96, were at $8.24 in extended trading after the quarterly results.

MBIA had quarterly net income of $696.7 million, versus a loss of $2.4 billion in the year-ago period.

On a per share basis, MBIA earned $3.34 in the quarter, compared with a $12.92 per share loss last year.

MBIA and smaller rival Ambac (ABK.N: Quote, Profile, Research) have struggled since last year, seeing new business dry up as credit ratings were downgraded.