* Fannie Mae, Freddie Mac report lifts banking stocks
* Oil rises $2 a barrel
* Dollar flat, bond yields up
By Jeremy Gaunt, European Investment Correspondent
LONDON, July 11 (Reuters) - A report that the U.S.
government is mulling a takeover of Fannie Mae and Freddie Mac
supported banking stocks on Friday but bonds fell and the dollar
was flat as investors focused on the glum reason for the move.
Oil jumped nearly $2 a barrel to above $143, erasing the
sharp losses seen at the beginning of the week.
The New York Times reported that the Bush administration was
mulling a plan to take over one or both struggling mortgage
finance companies Fannie Mae <FNM.N> and Freddie Mac <FRE.N> and
placing them in conservatorship.
Such a move would guarantee the mortgages that the
government-sponsored entities own, but could leave shareholders
with nothing [].
The report lifted banking stocks, helping the FTSEurofirst
300 index <> of top European shares up to rise 0.2
percent.
"At the very least people need to be aware of the fact that
with an election looming (or even without it), Fannie and
Freddie being allowed to go down in flames is about as likely as
(Federal Reserve Chairman Ben) Bernanke getting his old job back
at the South of the Border Mexican-themed rest area," ABN AMRO
said in a note.
Earlier, Japan's Nikkei average <> edged down 0.2
percent, but bank shares such as Mizuho Financial Group <8411.T>
rose reversing direction.
"After reading the article, the impression is that the
government takeover would be very difficult, given their large
debt and burden on taxpayers," said Nagayuki Yamagishi,
investment strategist at Mitsubishi UFJ Securities.
The benchmark Nikkei <> ended down 27.52 points at
13,039.69. The index lost 1.5 percent for the week. The broader
Topix <> lost 0.4 percent to 1,285.91.
RISING OIL, WORRIES ABOUND
Oil extended the 4 percent gains in the past session on
heightened geopolitical worries in Iran and Nigeria, as well as
fears of supply disruption in Brazil.
U.S. crude <CLc1> was up around $1.90 to around $143.50 a
barrel, after jumping $5.60 a barrel on Thursday.
"There are continuing concerns over oil supplies over the
short term," said Gerard Burg of National Australia Bank in
Melbourne.
The rises were taking oil back up to towards its record of
$145.85, hit last week before a sharp downturn.
The dollar consolidated near one=week lows versus a basket
of major currencies, its decline halted by a recovery in U.S.
and European equity markets and the slightly improved sentiment
on the financial sector.
"For the time (the NYT article) is just giving a little boost
to the greenback, but I think we have to stay cautious," said
Carole Laulhere, currency strategist at Societe Generale in
Paris.
The euro was steady at $1.5773 <EUR=>, near a one-week high
of $1.5800 and back near the top end of the $1.5300 and $1.5910
range that it has been trapped in for the past two months.
The dollar index steadied at 72.566, having hit a one-week
low of 72.412 on Thursday <.DXY>. The dollar was flat at 107.16
yen <JPY=>.
Euro zone government bond prices fell.
Two-year cash yields were at 4.421 percent <EU2YT=RR>,
around 4 basis points more than in late Thursday trade while
10-year Bunds were around 2 basis points higher at 4.406 percent
<EU10YT=RR>.
(Editing by Malcolm Whittaker)
