US bail-out sends UK shares leaping

The dramatic nationalisation of mortgage giants Fannie Mae and Freddie Mac by the US Government today sent London's leading shares soaring almost 4 per cent.

Yesterday's intervention helped soothe market fears over the fate of the duo, which own or guarantee more than $5 trillion (£2,800bn) worth of mortgages between them.

The pair have lost more than $14bn (£8bn) in the last year due to the slumping US housing market but their collapse would cause global turmoil as their bonds are held by major investors worldwide.

The news sent Asian stock markets soaring overnight, with Japan's benchmark Nikkei 225 up 3.4 per cent and Hong Kong's Hang Seng showing gains of almost 4 per cent. In London, the FTSE 100 Index was 3.8 per cent ahead before a technical glitch stopped trading.

CMC Markets dealer Matt Buckland said: "The move should take a lot of uncertainty out of the market in one quick move and at the same time stands to offer US consumers a helping hand too."

The rescue sent a raft of the UK's biggest banking stocks surging to double-digit gains as the move to prop up the pair offered hopes that a further slump in the US housing market might be prevented.

Barclays gained 12 per cent, Halifax Bank of Scotland and Royal Bank of Scotland both leapt 14 per cent, while Lloyds TSB added more than 10 per cent.

Major banks have written off billions in their exposure to the struggling US housing market through complex investments since the credit crunch began last year.

Meanwhile, other firms directly exposed to the US housing market such as heating and plumbing giant Wolseley rose 12 per cent, while, in the FTSE 250, US-exposed housebuilder Taylor Wimpey added 12 per cent.

The dramatic revival comes after the Footsie recorded its worst week of losses in more than six years last week.

But the prospect of Government-backed loans could help stimulate the US housing market and ease the crisis which has gripped financial markets since August last year.

The US Treasury has placed the duo into a "conservatorship", replacing the bosses and effectively wiping out existing shareholders in the two firms, who have in any case seen the value of their holdings fall by more than 90 per cent in the past year.

The US taxpayer could be exposed to tens of billions of dollars in soaring mortgage defaults at Freddie Mac and Fannie Mae, but US Treasury Secretary Henry Paulson stressed that the impact of allowing the two to fail would be far more serious.

US President George Bush said: "Allowing the companies to fail or further deteriorate would damage our home mortgage market, and could weaken other credit markets that are unrelated directly to housing."