/ 9 September 2008

Wall Street soars on Fannie, Freddie bail-out

US stocks rose on Monday as investors bet Washington's bail-out of Fannie Mae and Freddie Mac would stabilise the US housing sector.

United States stocks rose on Monday as investors bet Washington’s bail-out of mortgage finance giants Fannie Mae and Freddie Mac would stabilise 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 bail-outs ever.

The Dow industrials jumped nearly 300 points. Bank of America and Citigroup both rose more than 6% 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%.

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 lustre to the US economy.

Investors hope the bail-out, 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.

”We’ve had a major uncertainty removed from the market — both in the US and globally,” said Al Goldman, chief market strategist at Wachovia Securities in St Louis. ”It was critical for the government to step in. Does it solve all our problems? No. But it’s a strong step in the right direction.”

The Dow Jones industrial average closed up 290,18 points, or 2,59 %, at 11 510,49. The Standard & Poor’s 500 Index finished up 25,48 points, or 2,05%, at 1 267,79. The Nasdaq Composite Index was up 13,88 points, or 0,62 %, at 2 269,76. — Reuters