(Recasts with U.S. markets, adds byline; dateline previous
LONDON)
By Herbert Lash
NEW YORK, Feb 27 (Reuters) - U.S. stocks rallied for a
fourth day on Wednesday after the federal government moved to
free up billions of dollars to invest in the slumping U.S.
housing market, sparking a broad advance in financial shares.
The plunging U.S. dollar set a new low against the euro,
triggering a surge across commodities markets that are viewed
as safe havens. Gold shot to a record near $1,000 an ounce and
oil climbed to a record $102.08 a barrel.
The euro jumped past $1.50 for the first time after Federal
Reserve Chairman Ben Bernanke signaled that the U.S. central
bank will continue to cut interest rates despite stubborn
inflation.
European shares ended lower on worries about the U.S.
economy and as Britain's biggest mortgage lender, HBOS, warned
that financial and housing markets would remain difficult. But
losses were limited after the U.S. government said it would
lift investment caps for the country's top two home financing
companies.
U.S. government bond prices erased gains on the news the
that the investment caps for Fannie Mae and Freddie Mac, the
two largest providers of finance for U.S. home loans, will be
lifted on March 1.
Shares of Fannie Mae <FNM.N> and Freddie Mac <FRE.N>, which
are government sponsored, soared after the Office of Federal
Enterprise Oversight, their federal regulator, moved to ease
investments in the battered U.S. housing market.
"That's driving up the financials," said Giri Cherukuri,
head trader at OakBrook Investments LLC, in Lisle, Illinois.
"The market seems to be keyed on news that financial companies
are in better shape, that things are turning around in the
financial sector."
While investors cheered the move, the companies still must
hold strong reserves against possible losses, which will limit
any attempts to expand mortgage holdings in the short term.
The Dow Jones industrial average <> was up 55.69
points, or 0.44 percent, at 12,740.61. The Standard & Poor's
500 Index <.SPX> was up 5.21 points, or 0.38 percent, at
1,386.50. The Nasdaq Composite Index <> was up 15.26
points, or 0.65 percent, at 2,360.25.
The S&P Financial index rose 1.05 percent.
FANNIE, FREDDIE SHARES RISE
Shares of Fannie Mae, the largest U.S. home financing
company, surged as much as 17 percent, and shares of Freddie
Mac climbed as much as 16.6 percent, before both pared gains to
the low single-digit percentages.
Before markets opened, Fannie reported a $3.6 billion
fourth-quarter loss and said it expects a "significant"
worsening of the housing bust, which pushed its shares to
12-year lows.
Fannie said it will suffer bigger losses on home loans than
it forecast just three months ago as the decline in house
prices accelerates and sparks more foreclosures.
In Europe, shares ended down as HBOS <HBOS.L> led banking
stocks lower.
The pan-European FTSEurofirst 300 <> ended 0.22
percent lower at 1,358.21 points.
HBOS slid 6.8 percent after it said higher funding costs
hit its margins last year and that both financial and housing
margins would stay tough.
Japan's Nikkei average rose to a six-week closing high,
with blue-chip shares such as Sony Corp <6758.T> driving gains
after a $15 billion share buyback plan announced on Tuesday by
IBM <IBM.N> boosted investor confidence.
Hong Kong blue chips hit three-week highs.
The Nikkei average <> rose 1.5 percent to 14,031.30,
the highest close since Jan. 11, while the benchmark Hang Seng
Index <> in Hong Kong ended up 3.2 percent at 24,483.84.
U.S. oil earlier rallied to a record of $102.08 a barrel,
near its inflation-adjusted lifetime peak of $102.53.
But U.S. government data showing substantial builds in
crude oil and gasoline inventories again raised concerns about
the economy of United States, the world's biggest oil consumer,
and with it the prospects of future oil demand.
U.S. crude oil <CLc1> was down 29 cents at $100.59.
The dollar slumped to an all-time low versus a basket of
currencies on expectations the Federal Reserve will cut
interest rates aggressively, making U.S. assets less
attractive.
Bernanke, in testimony to the U.S. Congress, said the U.S.
central bank will act to ensure beleaguered housing and credit
markets do not further undermine an already sluggish economy.
"I am convinced they are prepared to ride through inflation
well above their target for the rest of the year at the
minimum. They are going to cut rates as need be to support
economic growth," said Brian Dolan, chief FX strategist at
Forex.com in Bedminster, New Jersey.
The euro/dollar <EUR=> was up 1.1 percent midway through
the New York session at $1.5133. The euro had climbed as high
as $1.5143, according to Reuters data, the first time it has
climbed above $1.51 in its nine-year history. The dollar index
fell to a record low of 74.070 <.DXY> .
Spot gold <XAU=> rose as high as $964.70 an ounce as
investors piled in, spurred by a plummeting dollar and oil
rising above $100 a barrel.
Silver rallied to its loftiest level since November 1980,
palladium jumped to a 6-1/2-year high and platinum advanced to
trade near last week's record highs before paring gains.
(Additional reporting by Chris Reese, Nick Olivari, Ellis
Mnyandu and Caroline Valetkevitch in New York, and Santosh
Menon and Atul Prakash in London; editing by Leslie Adler)
