* Global stocks rally on U.S. bailout of Fannie, Freddie
* Dollar index hits one-year high on U.S. takeover news
* Oil up slightly as Hurricane Ike threatens Gulf complex
* Bonds rise in anticipation of quicker mortgage payments
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Sept 8 (Reuters) - Global stocks and the dollar
soared on Monday in reaction to the U.S. government's seizure
of Fannie Mae and Freddie Mac, but lingering concern about
whether this will help end the global credit crisis cut some of
the initial gains.
Stock markets surged worldwide on hopes the U.S. Treasury's
plan to seize the companies -- which together back about half
of the $12 trillion in U.S. home mortgages -- might stabilize
financial markets that have suffered now for more than a year.
Government bond prices in Asia, Europe and the United
Stages at first fell after the massive step was announced on
Sunday to prop up the ailing U.S. housing market. But U.S.
Treasury debt prices later turned higher on technical moves to
stabilize mortgage portfolios and bond maturities.
Sterling fell to its lowest in more than two years against
a broadly stronger U.S. dollar, pressured by UK data showing
factory inflation may have peaked and the decision to seize
Fannie Mae and Freddie Mac.
The dollar rallied to a one-year peak against a basket of
six major trading currencies, gaining 1.3 percent on the day,
according to Reuters data. The euro fell to a session low of
$1.4055 <EUR=>, the lowest in about 11 months.
Oil prices, meanwhile, rose slightly as Hurricane Ike took
aim at the U.S. cluster of offshore rigs in the Gulf of Mexico,
most of which remain paralyzed in the wake of Gustav last
week.
The bailout sparked widespread euphoria with regional
equity benchmarks in Asia surging more than 4 percent and more
than 3 percent in Europe and the United States, before U.S.
markets pared the initial strong gains.
The rally was in response to shrinking capital bases at
Fannie and Freddie, which has undermined investor sentiment
worldwide since their financial assets were widely held by
foreign governments, banks and individuals.
"It definitely draws a line in the sand and should help
credit conditions, but we still need the underpinnings of the
housing market to show stability or improvement before we can
say the credit crisis is behind us," said Jack Ablin, chief
investment officer at Harris Private Bank in Chicago.
Financial shares surged on the news, with leading banks in
Britain posting double-digit gains and U.S. banks leading the
Dow and S&P 500 higher on hopes the U.S. government's move
would help stabilize a slumping U.S. housing sector.
Any recovery in U.S. home prices will be largely dependent
on the health of Fannie and Freddie, which are the biggest
providers of housing finance in the United States.
"We've had a major uncertainty removed form the market -
both in the U.S. 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 Nasdaq, which had rallied more than 2 percent in early
trade, slipped briefly into negative territory on a decline in
semiconductor shares. An index on the group <.SOXX> fell
0.12percent, paring much bigger losses.
The Dow Jones industrial average <> closed up 290.43
points, or 2.59 percent, at 11,510.74. The Standard & Poor's
500 Index <.SPX> rose 25.49 points, or 2.05 percent, at
1,267.80. The Nasdaq Composite Index <> added 13.88
points, or 0.62 percent, at 2,269.76.
European shares surged, led by financials, on the takeover
news. The London Stock Exchange <LSE.L>, Europe's leading
equities market as measured by volume, suffered from
connectivity problems which hampered trading for most of the
session.
Among UK financials, Barclays <BARC.L> rose 11.9 percent,
HBOS <HBOS.L> gained 11.4 percent and Royal Bank of Scotland
climbed <RBS.L> 11.3 percent.
The FTSEurofirst 300 stock index <> gained 3.3
percent with the DJ STOXX bank index <.SX7P> up 6.9 percent.
The rally fizzled as many investors concluded that while
the U.S. move will provide short-term relief for the U.S.
housing and global markets, it isn't a silver bullet.
"It will reduce the amount of stress, of course, and is a
necessary condition for stabilisation. But not a sufficient
condition," said Gianluca Salford, fixed income strategist at
JP Morgan.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
12/32 to yield 3.66 percent. The 30-year U.S. Treasury
bond<US30YT=RR> gained 26/32 to yield 4.26 percent.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 1.16 percent at 79.427. Against the yen,
the dollar <JPY=> rose 0.29 percent at 108.05.
The euro <EUR=> fell 0.88 percent at $1.4141.
U.S. crude futures <CLc1> settled up 11 cents to settle at
$106.34 a barrel after dipping to a five-month low of $104.70
earlier in the day. London's Brent crude futures <LCOc1> ,
trading at a steep discount to the U.S. benchmark, fell 65
cents to $103.44.
U.S. gold unwound early gains to close with small losses
when oil prices turned lower and the dollar surged.
December gold futures <GCZ8> lost $0.30 to end at $802.50
an ounce in New York.
Asian stocks surged 4 percent on Washington's bailout,
spurring investors to buy risky assets and sell safe havens
such as government bonds.
Japan's Nikkei share average <> rose 3.4 percent,
bouncing from a 5-1/2-month low on Friday, and Hong Kong's Hang
Seng index <> surged 3.9 percent, led by shares of Europe's
largest lender, HSBC Holdings <0005.HK>.
The MSCI index of Asia-Pacific stocks outside of Japan
<.MIAPJ0000PUS> soared 5.2 percent, rebounding from an almost
two-year low, in the biggest daily gain since August 2007.
(Reporting Ellis Mnyandu, Chris Reese and Gertrude
Chavez-Dreyfuss in New York and Ikuko Kao, Matthew Robinson,
Anna Stablum and Jamie McGeever and Peter Starck in Frankfurt)
(Writing by Herbert Lash. Editing by Richard Satran)
