Wall Street soars on Fannie, Freddie bailout

NEW YORK - Stocks rose on Monday as investors bet Washington's bailout of mortgage finance giants Fannie Mae and Freddie Mac would stabilie the US housing sector and calm jittery world financial markets.

Investors poured into stocks worldwide, especially bank shares, after the US Treasury on Sunday seized control of the two companies in what could become one of Washington's biggest bailouts ever.

The Dow industrials jumped nearly 300 points. Bank of America and Citigroup both rose more than 6 percent and were among the biggest drivers of gains on the Dow and the S&P. Home builders also advanced, with the Dow Jones home construction index rising more than 10 percent.

Any recovery in home prices will be largely dependent on the health of Fannie and Freddie, which own or guarantee about half of all outstanding mortgages and are the biggest providers of home financing in the country. The health of the housing market is considered key to restoring luster to the US economy.

Investors hope the bailout, which carries an explicit government backing for debt issued by the two companies, will shore up confidence in the mortgage market and stem a wave of bank write-downs tied to mortgage investments gone bad.

The Dow Jones industrial average closed up 290.18 points, or 2.59 per cent, at 11,510.49. The Standard & Poor's 500 Index finished up 25.48 points, or 2.05 per cent, at 1,267.79. The Nasdaq Composite Index was up 13.88 points, or 0.62 per cent, at 2,269.76.

Source: Singapore Business Times - 09 Sep 2008