* Rescue plan for Fannie and Freddie boosts stocks, bonds
* Relief rally in dollar knocks oil lower
* Relief may give way to fears about U.S. financial
stability
By Kevin Plumberg
HONG KONG, July 14 (Reuters) - Asian stocks edged up, the
dollar gained and government bonds fell on Monday after
Washington proposed an emergency plan to rescue the top U.S.
mortgage finance companies, offering to buy shares if
necessary. The plan was hatched in an attempt to calm
investors after Fannie Mae <FNM.N> and Freddie Mac <FRE.N>
stock both plummeted more than 40 percent last week on
spiralling fears that both companies, which are pillars of the
housing market, were under capitalised and the credit crisis
toppled a fifth U.S. bank.
However, uncertainty more than confidence remained the
rule.
"Steps to shore them up is a positive but the fact that
they are having difficulties in the first place is just
symptomatic of a difficult environment out there. And that
makes it hard to get too positive," said Greg Goodsell, equity
strategist with ABN AMRO in Sydney.
Japan's Nikkei share average <> rose 0.7 percent, led
by semiconductor equipment maker Tokyo Electron Ltd <8035.T>.
South Korea's KOSPI index <> climbed 0.6 percent, with
the no. 4 steel maker POSCO <005490.KS> paving the way higher
after the company increased its earnings forecasts last week.
Australia's benchmark index <> fell 0.4 percent,
weighed by resource-related shares and the financial sector the
largest drags.
Shares in Asia-Pacific companies outside of Japan were
essentially flat on the day, according to an MSCI index
<.MIAPJ0000PUS>.
The U.S. dollar enjoyed a relief rally on the Fannie and
Freddie bailout plan, after slipping 0.8 percent against a
basket of major currencies last week on concerns about the
stability of the U.S. financial system.
The euro fell 0.4 percent to $1.5890 <EUR=> and the dollar
rose 0.5 percent to 106.65 yen <JPY=>.
The recovering U.S. dollar knocked down oil prices, which
fell more than $2 to near $143 a barrel <CLc1>. However,
ongoing tension between the West and Iran, the world's fourth
largest crude exporter, supported prices. [].
The longer-term outlook for the dollar, however, was
darker, especially if the U.S. federal government is forced to
nationalise the so-called government-sponsored entities and
load up its balance sheet with their debt.
"The market will remain sceptical that the government won't
take full custodianship eventually. Such a development would
significantly increase public debt and would be detrimental to
U.S. credit ratings," said Ashley Davies, currency strategist
with UBS in Singapore.
"The uncertainty will likely deter foreign reserve managers
from acquiring additional U.S. Treasury and agency debt and
keep the dollar on the back foot for now," he said in a note.
Japanese government bond futures fell in tandem with U.S.
Treasuries as investors eased back on their holdings of
safe-haven debt in reaction to the Fannie and Freddie news.
September JGB futures fell by as much as 0.32 point to
135.67, before recovering some to 135.78 <2JGBv1>, down 0.21
point on the day.
The benchmark 10-year U.S. Treasury yield <US10YT=RR>,
which moves in the opposite direction to price, rose to 4.02
percent, up about six basis points from late Friday in New
York.
The timing of the U.S. government's announcement was
critical, ahead of a crucial sale of $3 billion in 3- and
6-month Freddie Mac debt later in the day and coming on the
heels of a run on IndyMac Bancorp Inc <IMB.N> that caused it to
collapse and come under federal control.
(Additional reporting by Geraldine Chua in Sydney)
