Business

NEW YORK (AP) ― Wall Street closed higher as investors placed bets that a recovery in the financial and housing sectors is more likely to occur following the U.S. government's move to bail out mortgage giants Fannie Mae and Freddie Mac.

The announcement that the Treasury Department was seizing control of the companies, which own or back about half the nation's mortgage debt, brushed aside investors' long-simmering worries that the pair would be felled by a spike in bad mortgage debt.

Investors were hoping that the plan to inject up to $100 billion in each of the government-chartered mortgage financiers could not only help lower mortgage rates but perhaps help buoy the overall economy.

The Dow Jones industrials gained nearly 300 points to finish at the 11,510 level.

Private analysts caution it may not be enough to stabilize the housing market because of a glut of vacant homes for sale, rising foreclosures, rising unemployment and weak consumer confidence.

Economist Mark Zandi with Moody's Economy.com predicts that 30-year mortgage rates could dip to close to 5.5 percent. They now average 6.35 percent nationwide. Investors are seen more willing to buy the debt issued by Fannie and Freddie—and at lower rates— since the federal government is now standing behind that debt.

Officials announced that Fannie Mae and Freddie Mac were being placed in a government conservatorship, a move that could end up costing taxpayers billions of dollars. Treasury Secretary Henry Paulson has refused to estimate how much the takeover of the two companies will cost the government. He insists that taxpayers will get paid back first.

But the government's steadying hand for two institutions that many Wall Street observers had said were simply too big to let fail still might not alleviate troubles of some homeowners who have fallen behind on their mortgages.

Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams in New York, said while the plan boosts confidence in sectors like financials and home builders, it doesn't immediately alleviate worries about other areas of the economy. Still, he said the move was far more welcome than a collapse of Fannie Mae or Freddie Mac.

"It saves Armageddon from happening," he said. "If you think about it this helps the financials, this helps the housing market. Tech took a huge hit last week. Does this really affect tech? I don't think so."

Common shareholders of the stock of Fannie Mae and Freddie Mac will be virtually wiped out by the plan, which would balloon the shares of companies to give a nearly 80 percent stake to the government. But the companies' shares had already suffered huge declines in the last year so many shareholders have already endured the majority of their losses.

Fannie Mae shares plunged $6.26, or 88.9 percent, to $.78, while Freddie Mac fell $4.23, or 82.9 percent, to 87 cents.

The U.S. government's plan also touched off a global stock rally Monday. Foreign investors holding debt of the companies were relieved as were investors simply looking for stronger growth from the U.S. economy, particularly as many economies abroad give off signs they are slowing. Japan's Nikkei stock average jumped 3.4 percent and Hong Kong's Hang Seng index surged 4.3 percent. Britain's FTSE 100 jumped 3.81 percent, Germany's DAX index rose 3.06 percent, and France's CAC-40 surged 3.42 percent.

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