* Dollar up, Treasury and Fed offer help to Fannie, Freddie
* Before announcements, dollar fell near record low vs euro
* Rebound in Fannie, Freddie stock and bonds may help dollar
By Eric Burroughs
TOKYO, July 14 (Reuters) - The dollar inched up from near a
record low against the euro on Monday after the U.S. Treasury and
Federal Reserve launched emergency measures to restore investor
confidence in embattled U.S. mortgage lenders Fannie Mae <FNM.N>
and Freddie Mac <FRE.N>.
The Treasury boosted its direct credit lines to the companies
that fund half of all U.S. mortgages and said it would buy their
shares if necessary, while the Fed said its direct lending window
to financial firms was available to them. []
Both Fannie, Freddie and their regulator repeated that they
had adequate capital and plenty of access to liquidity in what
has become the latest chapter in the year-old credit crisis
spawned by swelling defaults on U.S. subprime mortgages.
Highlighting the ongoing housing debacle in the United
States, federal regulators seized mortgage lender IndyMac Bancorp
in the third largest bank failure in the country's history.
The doubts about the health and capital strength of the
mortgage financing giants have spooked dollar-holders since their
about $5 trillion of bonds are held by so many investors around
the world, especially central banks in Asia.
Reports last week raised the prospect of the U.S. government
nationalising Fannie and Freddie if their financial condition
worsened.
Treasury Secretary Henry Paulson noted in a statement that
the bonds of Fannie and Freddie were held "around the world," an
acknowledgment to some analysts of the important role their
massive debt plays for the dollar.
"At the end of the day, the holders of agency debt are
significantly in overseas hands and foreign central banks. They
had to do this because confidence could weaken further, and that
would be very, very bad for the dollar," said Sharada
Selvanathan, a currency strategist at BNP Paribas in Hong Kong.
"There's still going to be a lot of concern about the
dollar," Selvanathan said.
Russia's central bank said over the weekend it was happy with
its holdings of roughly $100 billion of agency bonds, but other
central banks stayed mum. []
As of mid-2007, China and Japan were the biggest long-term
agency bondholders at $376 billion and $228 billion respectively,
according to U.S. Treasury data.
Analysts said the dollar's recovery would depend on whether
the U.S. initiatives were enough to assuage investors' concerns
about the financial health of Fannie and Freddie. Any improvement
in the credit spreads and shares of Fannie and Freddie may help
the dollar rebound further.
The euro dipped 0.2 percent from U.S. trade last week to
$1.5901 <EUR=> and pulled back from a three-month peak of $1.5972
struck before the Treasury and Fed announcements, not far from
the record high of $1.6020 hit in April.
The euro dipped 0.1 percent against the yen to 169.19 yen
<EURJPY=R>, after touching a record high of 169.69 yen on trading
platform EBS earlier on Monday.
The dollar climbed 0.2 percent to 106.41 yen <JPY=>,
recovering from a low of 105.96 yen hit in early trade.
NATIONALISTION ON THE TABLE
Traders said the dollar's reaction in Asia was limited
because investors wanted to take their cue from markets in London
and New York later in the day.
Investors will also be watching to see how the latest
developments affect Fed Chairman Ben Bernanke's views on monetary
policy and the economic outlook.
Bernanke will testify before the Senate Banking Committee on
Tuesday and the House of Representatives' Committee on Financial
Services on Wednesday.
After Fannie and Freddie's shares and bonds had slid for much
of last week on worries about their condition, reports that the
Bush administration was mulling a take-over if their troubles
deepened caught investors by surprise and helped their debt
rebound.
The possibility of a government take-over of the two big
mortgage companies was still on the table, analysts said.
"This is one small step in the direction of nationalisation,"
said Naomi Fink, Japan macro strategist at Bank of
Tokyo-Mitsubishi UFJ.
Fink said a rebound in their bonds and shares may mean the
troubles for Fannie and Freddie go no further, but if the
companies find they need to rely on the Fed's discount window for
cash their nationalisation becomes a more serious possibility.
Stock markets in Asia initially took heart from the
announcements, hoping for a resolution to the latest financial
sector fears, but later shed their gains.
Japan's Nikkei average <> fell 0.4 percent, after having
risen by more than 1 percent earlier in the day.
(Additional reporting by Masayuki Kitano; Editing by Chris
Gallagher)
