* Global stocks jump after U.S. bailout of Fannie, Freddie
* Rally pares gains; U.S. bailout seen as no panacea
* Dollar index hits one-year high on Freddie, Fannie news
* Bonds pressured as bailout seen bolstering U.S. recovery
(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, Sept 8 (Reuters) - Global stocks surged and the
dollar soared to a one-year peak initially on Monday in
reaction to the U.S. government's seizure of Fannie Mae and
Freddie Mac but markets retreated from highs as uncertainty
lingered about the prolonged credit crisis.
Equity markets surged worldwide as hopes the U.S.
Treasury's plan to take over the companies, which together back
about half of the $12 trillion in U.S. home mortgages -- might
put a floor under troubled financial markets.
U.S. and euro zone government bond prices fell after the
U.S. government's massive step on Sunday to prop up the ailing
U.S. housing market and ward off further financial turmoil that
Fannie and Freddie pose to markets and the U.S. economy.
Oil prices, meanwhile, edged lower after an early rise as
Hurricane Ike churned toward the U.S. oil hub in the Gulf of
Mexico and traders awaited a decision this week by the
Organization of Petroleum Exporting Countries on its production
policy. U.S. light sweet crude oil <CLc1> fell 85 cents to
$105.38 a barrel.
The bailout sparked widespread euphoria with regional
equity benchmarks in Asia surging more than 4 percent and in
Europe more than 3 percent. Shrinking capital bases at Fannie
and Freddie had undermined investor sentiment worldwide since
its financial assets were widely held by banks and
individuals.
But an early flight from safe-haven government bonds and
into riskier assets had faded by late New York morning trade.
"Good news for financials, but again, it's not a panacea,"
said Jack Ablin, chief investment officer at Harris Private
Bank in Chicago.
"It definitely draws a line in the sand and should help
credit conditions, but we still need the underpinnings of the
housing market to show stability or improvement before we can
say the credit crisis is behind us," Ablin said.
Semiconductors weighed heavily on tech shares on the view
that the sector is still vulnerable to sluggish global growth.
Even though financials were still in positive territory, a
drop in plunge of Lehman Brothers <LEH.N> took some steam out
of the sector, causing the broader market to also pare gains.
U.S. 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 bailout.
"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.
Before 1 p.m., the Dow Jones industrial average <> was
up 161.62 points, or 1.44 percent, at 11,381.93, after jumped
more than 300 points in early trading.
The Standard & Poor's 500 Index <.SPX> was up 13.13 points,
or 1.06 percent, at 1,255.44. The Nasdaq Composite Index
<> gained slightly 0.12 points, or 0.01 percent, at
2,256.00, after slipping into negative territory.
Shares of financial services companies, including banks,
led gainers. Bank of America <BAC.N> was up more than 7 percent
while JPMorgan Chase <JPM.N> climbed more than 5 percent. 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 4 percent.
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
fire-sale price.
Analysts initially viewed the U.S. Treasury bailout as a
positive step in staving off wider financial and housing market
weakness, which helped bolster the dollar.
"On balance, the takeover of Fannie and Freddie is a net
positive for the U.S. dollar because it shores up confidence in
the U.S. financial sector," said Omer Esiner, a senior market
analyst, at Ruesch International on Washington.
"Having said that, I don't think the government action
represents a silver bullet for all the problems facing the
housing market and the economy.
In Europe, the FTSEurofirst 300 stock index <> gained
4 percent with the DJ STOXX bank index <.SX7P> up 8 percent.
But the equity rally fizzled as investors began to come to
the conclusion that while the U.S. move will provide short-term
relief for the U.S. housing and global financial markets, it
isn't a silver bullet.
"It will reduce the amount of stress, of course, and is a
necessary condition for stabilisation. But not a sufficient
condition," said Gianluca Salford, fixed income strategist at
JP Morgan.
"In terms of broad market sentiment, I don't expect this to
be a sea-changing event," he said.
OPEC ministers gathering in Vienna were expected to leave
formal production targets unchanged as Ike threatened U.S.
offshore oil installations still recovering from Hurricane
Gustav last week.
U.S. Treasury debt prices were mixed. The benchmark 10-year
U.S. Treasury note <US10YT=RR> fell 5/32 to yield 3.73 percent.
The 30-year U.S. Treasury bond <US30YT=RR> rose 2/32 to yield
4.31 percent.
Gold swung back and forth, twice rising 2 percent before
partially relinquishing the gains, tracking moves in the dollar
and oil prices.
Spot gold prices <XAU=> fell $3.50 to $799.30.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 1.29 percent at 79.525. Against the yen,
the dollar <JPY=> was up 0.29 percent at 108.05.
The euro <EUR=> fell 0.97 percent at $1.4129.
Asian stocks surged 4 percent on Washington's bailout,
spurring investors to buy risky assets and sell safe havens
such as government bonds.
Japan's Nikkei share average <> rose 3.4 percent,
bouncing from a 5-1/2-month low on Friday, and Hong Kong's Hang
Seng index <> surged 3.9 percent, led by shares of Europe's
largest lender, HSBC Holdings <0005.HK>.
The MSCI index of Asia-Pacific stocks outside of Japan
<.MIAPJ0000PUS> soared 5.2 percent, rebounding from an almost
two-year low, in the biggest daily gain since August 2007.
(Reporting Ellis Mnyandu, Chris Reese and Gertrude
Chavez-Dreyfuss in New York and Ikuko Kao, Matthew Robinson,
Anna Stablum and Jamie McGeever and Peter Starck in Frankfurt)
(Writing by Herbert Lash)
