* Dow, S&P rise after govt takeover of Fannie, Freddie
* Doubts grow on GSE move to aid housing, credit markets
* Banks, home builders pare gains after powerful open
* Nasdaq turns negative on semiconductors
(Updates to midday)
By Richard Leong
NEW YORK, Sept 8 (Reuters) - The Dow and S&P rose on Monday
on hopes a government takeover of U.S. mortgage finance giants
Fannie Mae <FNM.N> and Freddie Mac <FRE.N> will aid the housing
market and stabilize credit markets.
But doubts about the effectiveness of this bold federal
move cut into early gains, while weakness in the semiconductor
sector erased gains on Nasdaq.
Investors worldwide had poured into stocks after the U.S.
government on Sunday seized control of the two struggling
government-sponsored enterprises, in what could be among
Washington's biggest bailout ever. For more see
[].
Fannie Mae and Freddie Mac are critical to the U.S. housing
market and any recovery in home prices will be largely
dependent on the health of the, which are the biggest providers
of housing finance in the country.
Stocks retreated from their powerful open, as more
investors questioned the benefits to the housing sector and the
rest of the economy from the government's decision to rescue
the two companies, which invest in and guarantee mortgages.
"There was an initial euphoria. Now you have folks taking
half a step back looking at the plan," said Chip Hanlon,
president of Delta Global Advisors in Huntington Beach,
California.
"This is just delaying the day of reckoning," he added.
The Dow Jones industrial average <> was up 110.16
points, or 0.98 percent, at 11,330.47 after gaining as much as
350 points or 3.1 percent. The Standard & Poor's 500 Index
<.SPX> was up 5.77 points, or 0.46 percent, at 1,248.08. The
Nasdaq Composite Index <> was down 17.08 points, or 0.76
percent, at 2,238.80.
Shares of investment bank Lehman Brothers <LEH.N> plunged
following news that its executives were meeting with potential
buyers for the bank's Neuberger Berman asset management arm.
Investors worried Lehman may be forced to sell the unit at a
bargain basement price.
But overall, shares of financial services companies,
including banks, led gainers. Bank of America <BAC.N> was up
more than 5 percent at $34.00, while JPMorgan Chase <JPM.N>
rose 3.5 percent at $40.98. The stocks were among the top
boosts to both the Dow and the S&P 500. The S&P financial index
<.GSPF> rose more than 2.7 percent.
Home builders also advanced, with the Dow Jones home
construction index <.DJUSHB> rising more than 6 percent.
Shares of luxury homebuilder Toll Brothers <TOL.N> jumped
5.5 percent to $25.52 on the New York Stock Exchange.
The bailout of Fannie and Freddie is likely to shore up
confidence in the beleaguered financial sector by helping stem
the wave of write-downs buffeting banks as they pile up losses
stemming from soured mortgage investments, according to
analysts.
The takeover plan makes it more explicit that debt issued
by Fannie Mae and Freddie Mac will be backed by the U.S.
government.
The federal takeover, however, could wipe out their common
and preferred shareholders. Fannie and Freddie common stocks
were trading at about $1 a share, off more than 80 percent from
Friday's close on New York Stock Exchange.
In other sectors, shares of Altria <MO.N>, the maker of
Marlboro cigarettes, jumped 3.3 percent to $21.65 after the
company said it was buying smokeless tobacco maker UST <UST.N>
for $10.4 billion. [].
On the Nasdaq, semiconductor shares weakened with an index
on the group <.SOXX> down 1.2 percent.
Several brokerages on Monday downgraded National
Semiconductor <NSM.N> after the analog chip maker posted a
lower quarterly profit on Friday and issued a a revenue outlook
that was a bit weaker than expected. []
Also on the Nasdaq shares of UAL Corp. <UAUA.O> , the
parent of United Airlines, pared massive losses to trade down
7.6 percent at $11.37. The shares had initially plunged after a
Chicago Tribune story about UAL possibly filing for bankruptcy.
UAL said the story was "untrue." []
(Additional reporting by Ellis Mnynadu; Editing by Leslie
Adler)
