Fannie, Freddie Bailout Boosts Global Markets

World stock markets soared Monday after Washington announced a bailout of mortgage giants Fannie Mae and Freddie Mac -- a move that could help bolster a shaky U.S. housing market and renew global investor confidence.

By afternoon in Europe, Germany's DAX jumped 3.45% to 6,338.89 and France's CAC 40 climbed 4.83% to 4,399.55.

Trading on the London Stock Exchange, Europe's oldest independent exchange, was halted in the morning because of a computer fault but Britain's FTSE 100 had risen 3.81% to 5,440.20 shortly after 9:00 a.m. local time (0800 GMT), and remained at that level midmorning.

"It was a very broad rally," said Lawrence Peterman, investment director at Eden Financial in London. "All the banks are up strongly on the back of the U.S. news at the weekend."

Shares in HSBC Holdings Plc, Europe's largest bank by market value, advanced 5%. HBOS Plc, one of Britain's biggest mortgage lenders, rose 12.98%, and Barclays Plc, the country's third largest bank, 11.90%.

Over in Asia, Japan's benchmark Nikkei 225 index surged 3.4% to 12,624.46, while Hong Kong's Hang Seng index advanced 4.3% to 20,794.27. Seoul's Kospi rose 5.2%.

The U.S. Treasury's decision Sunday to take control of the two financial institutions, which own or guarantee about half of U.S. mortgage debt, removes a big cloud that had been weighing on global markets. With investors growing increasingly anxious over fallout from the U.S. credit crunch, global markets had been volatile.

Jacky Choi, a Hong Kong-based fund manager at Value Partners Ltd., which manages about US$5 billion in assets in Asia, said the bailout comes as a relief to the many Asian governments and institutions with the mortgage giants' debt on their books.

"It's a must for the U.S. government," he said of the plan. "The Japanese and other governments are holding all these Freddie and Fannie bonds. It would really hurt the global economy and financial system" if the U.S. government didn't act.

Japan and Australia applauded the move. "We welcome the plan as an appropriate measure as it is believed to contribute to stabilizing the financial markets," Japanese Chief Cabinet Secretary Nobutaka Machimura was quoted as saying by Kyodo News.

Glenn Stevens, head of Australia's central bank called the bailouts "the right thing."

"Their implications are likely to be positive for markets because it's a source of uncertainty close to resolution," he said at an appearance before a parliamentary committee in the southern city of Melbourne.

Choi, however, noted that Monday's surge didn't necessarily foreshadow a broader turnaround and noted that trading volumes weren't very large in some markets. Many investors were still hesitant to place long-term bets, he said.

"People are still reluctant," he said. "It takes time for sentiment to recover in a market like this."

For now, the news injected life into financial issues, with major Asian banks the big winners of the day.

Japanese megabank Mitsubishi UFJ Financial Group, Inc. shot up 13%, Sumitomo Mitsui Financial Group, Inc. jumped 15, and Mizuho Financial Group, Inc. rebounded 12%.

In Sydney, the Commonwealth Bank of Australia rose 7.9%, and National Australia Bank 6.4 was% higher.

Hong Kong's HSBC soared 5.5%, and China's biggest lender ICBC rose 3.7%.

Nomura Holdings, Inc. jumped 9.7% following weekend reports that Japan's largest brokerage group is considering buying a stake in U.S. investment bank Lehman Brothers. Nomura has funds exceeding US$1.87 billion for investment in U.S. and European financial institutions and is considering Lehman as one of its investment candidates, Nomura President Kenichi Watanabe was quoted as saying by the Japanese newspaper Yomiuri.

Bucking the regional trend was China's Shanghai Composite index, which fell 2.7% to 2,143.42 -- its lowest close since Dec. 8, 2006. Worries over the economic outlook overshadowed news of a plan by a market regulator to help ease an oversupply of newly tradable shares.

Chinese refiners led the decline on expectations that the government might put off widely anticipated plans to raise retail fuel prices, which are kept below international levels to help curb inflation, due to the recent decline in global crude oil prices.

Elsewhere, Taiwan's key index shot up 5.6%, as investors took a cue from a planned government package to stimulate the sagging economy.

India's Sensex jumped 3.2% on news that India will be allowed to buy nuclear fuel and technology for civilian use, as well as the Fannie Mae and Freddie Mac plan.

"The market is looking at the possibility of what a nuclear deal can do for India and the new status India has achieved in the global arena," said Rajesh Jain, CEO of Pranav Securities, a Mumbai brokerage.

Monday's gains in Asia follow a dismal trading session Friday when concerns about the U.S. economy and its impact on global growth sent markets tumbling across the region.