Stocks rise globally as U.S. government seizes Fannie, Freddie

Stocks rise globally as U.S. government seizes Fannie, Freddie

Hurriyet English with wires

Stocks rose in Europe and Asia, sending the MSCI World Index to its biggest gain since April, on speculation the U.S. government's takeover of Fannie Mae and Freddie Mac will shore up the mortgage market. U.S. index futures climbed, while Treasuries fell the most in two months. (UPDATED)

The MSCI World Index added 1.7 percent to 1,290.56 at 10:07 a.m. in London as all 10 industry groups except for health-care companies rose. Europe's Dow Jones Stoxx 600 Index and the MSCI Asia Pacific Index each climbed the most since January, advancing 4 percent and 4.4 percent, respectively. Futures on the Standard & Poor's 500 Index rose 3.1 percent.

The U.S. government on Sunday seized control of mortgage finance companies Fannie Mae and Freddie Mac, launching what could be its biggest federal bailout ever, in a bid to support the United States housing market and ward off more global financial market turbulence. Treasury Secretary Henry Paulson said the government will provide short-term funding to the two biggest U.S. mortgage-finance companies and purchase debt backed by home loans.

The takeover of Fannie Mae and Freddie Mac "is the beginning of the end of the problem," Lucy MacDonald, the London-based chief investment officer of global equities at RCM Ltd., told Bloomberg. "We'll see a floor put under financial shares."

Fannie Mae fell 60 percent in Germany and Freddie Mac lost 56 percent after the Treasury's plan eliminated their dividends and left common stockholders last in line for any claims.

Officials were concerned mounting losses at the two companies, which own or guarantee almost half of the country's $12 trillion in outstanding home mortgage debt, was sapping their vitality and threatening to undermine them at a time other sources of housing finance have largely run dry.

"Our economy and our markets will not recover until the bulk of this housing correction is behind us," U.S. Treasury Secretary Henry Paulson said at a news conference. "Fannie Mae and Freddie Mac are critical to turning the corner on housing."

The two companies, publicly traded but also serving a government mission to support housing, were put in a conservatorship that allows their stock to keep trading but puts common shareholders last in any claims.

Their top executives were ousted. Freddie Mac chief executive Richard Syron and Fannie Mae's CEO, Daniel Mudd, were replaced by David Moffett, a former top official at U.S. Bancorp and Herb Allison, formerly with Merrill Lynch and pension fund TIAA-CREF.

In addition, the U.S. Treasury will immediately take a $1 billion equity stake in each company in the form of senior preferred stock and if needed could inject up to $100 billion into each firm.