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NEW YORK - WALL Street shares surged on Monday as investors hoped the government's takeover of struggling mortgage finance giants Fannie Mae and Freddie Mac would stave off a financial system meltdown.
The Dow Jones Industrial Average leapt 289.78 points, or 2.58 per cent to close at 11,510.74 and the tech-heavy Nasdaq composite rose 13.88 points, or 0.62 per cent to 2,269.76.
The broad-market Standard & Poor's 500 index advanced 25.48 points (2.05 percent) to finish at 1,267.79.
Treasury Secretary Henry Paulson announced Sunday the government had seized control of shareholder-owned Fannie Mae and Freddie Mac to prevent their collapse and stem the worst housing slump in decades.
'A major uncertainty has been substantially removed from the world and thus the stock market,' said Mr Al Goldman at Wachovia Securities.
'It is assumed (speculated) that this will shore up the mortgage market but it is at least the beginning of the end of the problem. Yes, taxpayers will pay the bill, but that is better than the alternative,' Mr Goldman said.
The two government-sponsored enterprises (GSEs) underpin trillions of dollars of home loans, about 40 per cent of the US market, and have posted multibillion dollars in losses since the global credit crunch stemming from the US subprime mortgage crisis began a little over a year ago.
Among the measures taken, the Treasury said it would inject US$100 billion (S$143 billion) in each if needed.
Shares in Fannie Mae and Freddie Mac, which had lost about 90 per cent of their value in the past year, plunged below a dollar. Fannie plummeted 89.63 per cent to 73 cents and Freddie fell 82.75 per cent to 88 cents.
'This act still isn't a cure-all for the housing market,' Mr Patrick O'Hare, analyst at Briefing.com. 'However, it serves as an inflection point that will bolster confidence in the notion that the worst of things is over.'
Wall Street echoed major relief rallies in Asia and Europe after the federal takeover and the dollar jumped to an 11-month high against the euro.
Other financial-sector stocks on Wall Street were bolstered: Citigroup gained 6.55 per cent to US$20.33, Bank of America leapt 7.76 per cent to US$34.73 and Goldman Sachs advanced 3.98 per cent to US$169.73.
Bucking the trend was Lehman Brothers, which slid 12.65 per cent to US$14.15. The troubled investment bank announced it would unveil a new strategic plan on September 18 aimed at restoring its finances and market confidence.
ConocoPhillips powered 8.90 per cent higher to US$74.75 after the US oil giant said it would pay up to US$8.0 billion for 50 per cent of a venture with Australia's Origin Energy to convert coal seam gas in Queensland state to liquefied natural gas for export to Asia.
Bonds retreated. The yield on the 10-year US Treasury bond rose to 3.665 per cent from 3.660 per cent on Friday and that on the 30-year bond climbed to 4.269 per cent from 4.276 per cent. Bond yields and prices move in opposite directions. -- AFP
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