* Stocks up, govt bonds down on US rescue of mortgage
giants
* Yen suffers as risks reduced by prop to US housing market
* Global financial crisis still wears on, analysts say
(Updates prices, adds quote)
By Kevin Plumberg
HONG KONG, Sept 8 (Reuters) - Asian stocks surged 4 percent
and government bonds tumbled on Monday after Washington took
over Fannie Mae and Freddie Mac to save the U.S. housing market
and limit the extensive damage of the financial crisis.
Investors, who have been keeping their portfolios heavy
with cash, devoured bank shares and ploughed into most
Asia-Pacific currencies as the rescue of the top mortgage
finance companies, possibly the biggest U.S. government bailout
ever, helped willingness to take risks.
Still, the impact of the rescue package on the U.S.
government's fiscal position could ultimately hurt the U.S.
dollar, some analysts said, a prospect that helped to send
Treasury yields higher.
"You do take some of default risk out of the market, so in
that sense this is good for other financial assets. You have
reduced systemic default risk," said Paul Schulte, regional
strategist with Lehman Brothers in Hong Kong.
"Longer-term we have a lot more glass to crawl over because
we have arrangements with other financial institutions that
need to get worked out," he said.
Japan's Nikkei share average <> rose 3.6 percent,
bouncing from a 5-1/2-month low on Friday.
Stocks of large banks such as Mitsubishi UFJ Financial
Group <8306.T> and Mizuho Financial Group <8411.T> rallied 12.3
percent and 11.4 percent, respectively.
The MSCI index of Asia-Pacific stocks traded outside of
Japan <.MIAPJ0000PUS> was up 4.4 percent, rebounding from the
lowest since October 2006. It was on track for the biggest
daily gain since January 2008.
Hong Kong's Hang Seng index <> was up 3.9 percent, led
by shares of Europe's largest lender HSBC Holdings <0005.HK>.
BUYING BACK RISK
Dealers in the currency market scrambled to sell yen for
just about every major currency after last week knocking down
the euro to the lowest in a year against the yen because of
fears the global economy was slowing rapidly.
The euro jumped to 156.35 yen <EURJPY=R>, up 1.8 percent
from late in New York on Friday and shot as high as 156.93 yen
on trading platform EBS. The dollar climbed 0.7 percent to
108.55 yen <JPY=> and was as high as 109.05 earlier in the
morning.
The U.S. currency fell 1.4 percent against the Singapore
dollar <SGD=> and 1.6 percent against the Malaysian ringgit
<MYR=>.
The U.S. government on Sunday seized control of mortgage
finance companies Fannie Mae <FNM.N> and Freddie Mac <FRE.N>,
which own or guarantee half of all U.S. mortgages, ending weeks
of speculation after regulators judged the companies' shrinking
capital position left them too vulnerable. []
As part of the plan, the Treasury is taking an equity stake
in the companies and promised to purchase mortgage-backed
securities they issue and provide however much liquidity is
necessary to keep them afloat -- actions that together could
top $200 billion.
Asian local currency debt yields narrowed relative to their
benchmarks and credit default swap spreads were also expected
to tighten as investors repriced the level of risk in markets.
"By removing a nearly $5 trillion uncertainty over agency
debt from the market, we anticipate a snap rally in credit this
morning. Asian sovereigns notably Korea should be principal
beneficiaries of the U.S. governments credit backstop in that
debt class," said Brett Williams, credit analyst with BNP
Paribas, in an email to clients.
However, Citigroup analysts said the longer Washington
increases its debt by figuring a way out essentially to
restructure the housing market, the more the dollar and U.S.
assets in general are seen in a negative light.
"This stops well short of the 'nightmare scenario' where
foreign investors start to sell the stock of their U.S.
holdings, triggering a U.S. dollar collapse, but represents
another factor arguing against more dollar-favorable capital
flows," the analysts said in a note.
U.S. Treasuries fell sharply in reaction to the Fannie and
Freddie bailout. Benchmark 10-year Treasury prices fell,
pushing up yields to 3.80 percent <US10YT=RR>, up from 3.71
percent in late U.S. trading on Friday.
Japanese government bond futures fell, following a slide in
U.S. Treasuries and a surge in equity markets. September
10-year futures <2JGBv1> slumped 1.32 points to 137.36 after
rising to a five-month peak of 139.09 on Friday.
Oil prices rose more than $2 a barrel, supported by worries
Hurricane Ike would tear through the Gulf of Mexico and further
crimp rig activity in what has been a busy storm season. U.S.
light crude for October delivery <CLc1> was at $108.51 a
barrel.
(Editing by Jean Yoon)
