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LONDON: European and Asian stock markets surged Monday after the US government grabbed control of ailing mortgage giants Fannie Mae and Freddie Mac, easing fears of a world financial crisis, dealers said.
The Paris market rocketed 4.76 per cent and Frankfurt won 3.37 per cent in midday trading.
London's FTSE 100 index of leading shares jumped 3.81 per cent to 5,440.20 points, at which point it was suspended because of connectivity problems with some clients, a spokeswoman told AFP.
The Tokyo market closed up 3.38 per cent and Hong Kong ended with a gain of 4.3 per cent as investors cheered Sunday's dramatic move in Washington aimed at shoring up the troubled US housing market.
"There's only one story that means anything as the new trading week gets underway and that's the nationalisation of Fannie Mae and Freddie Mac that was announced by the Fed over the weekend," said CMC Markets dealer Matt Buckland.
"Whilst this underlines the ongoing impact of the credit crunch, the move should take a lot of uncertainty out of the market in one quick move and at the same time stands to offer US consumers a helping hand too," added Buckland.
The sudden upturn came on the heels of a worldwide slump Friday on news that US unemployment had soared to a five-year high, sparking fresh talk of a recession in the United States, the world's biggest economy.
But Asia roared back on Monday, with Seoul rocketing 5.2 per cent and Sydney finishing up 3.9 per cent.
Singapore roared to a close at 4.67 per cent higher, Mumbai ended with a gain of 3.18 per cent, while Bangkok closed up 3.08 per cent.
"Markets reacted positively at first glance to the news because it dispelled uncertainty about credit and fears of a worsening housing market," said Hachijuni Bank dealer Masatsugu Miyata.
Some dealers warned that the gains could be short-lived as the US bailout could further strain government finances and burden taxpayers with billions of dollars.
"The fundamental problem does not lie with the mortgage businesses but with the economy and housing market that went bust," said Sumitomo Mitsui Banking Corp. chief strategist Daisuke Uno.
And worsening economic conditions could further devalue Freddie and Fannie securities, which would send Washington's plan up in flames, he warned.
Shanghai bucked the upbeat trend across Asia on Monday, with Chinese shares sliding 2.68 per cent.
While dealers in China also welcomed the US bailout, the Asian power is beset by concerns of a domestic credit crunch as giant public offerings sap up liquidity, dealers said.
On Sunday the US Treasury Department announced it would put Freddie Mac and Fannie Mae under strict federal control and may invest up to US$100 billion in each group.
The companies have each lost about 90 per cent of their value on fears of further losses from mortgage defaults by "subprime" customers, who were given loans despite patchy credit histories.
The subprime crisis has ballooned into a global credit crunch, pummelling stock markets around the world since late last year.
Japan's government also welcomed the bailout plan.
"This will remove one factor causing instability in the US economy and have a good impact on the world economy," Finance Minister Bunmei Ibuki told reporters.
Ibuki said that US Treasury Secretary Henry Paulson would hold a conference call later Monday to brief his counterparts in the other Group of Seven major economies - Britain, Canada, France, Germany, Italy and Japan.
In Japan, some analysts likened the US takeover to Japan's own bailout of its banks in the late 1990s, which helped them overcome a bad loans crisis in Asia's largest economy.
- AFP/yb
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