NEW YORK (AP) – Stocks rallied Monday as investors placed bets that a recovery in the financial and housing sectors is more likely to occur following the U.S. government’s move to bail out mortgage giants Fannie Mae and Freddie Mac.

The announcement Sunday that the Treasury Department was seizing control of the companies brushed aside investors’ long-simmering worries that the pair would be felled by a spike in bad mortgage debt.

Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams in New York, said that while the plan boosts confidence in sectors like financials and home builders, it doesn’t immediately alleviate worries about other areas of the economy. Still, he said the move was far more welcome than a collapse of Fannie Mae or Freddie Mac.

“It saves Armageddon from happening,” he said. “If you think about it, this helps the financials, this helps the housing market. Tech took a huge hit last week. Does this really affect tech? I don’t think so.”

Common shares of Fannie Mae and Freddie Mac will be made virtually worthless by the plan, which will dilute the stock. But the companies’ shares had already suffered huge declines in the last year so many shareholders have already endured the majority of their losses.

Fannie Mae shares plunged $6.34, or 90.1 percent, while Freddie Mac fell $4.21, or 83 percent.

The government’s action may raise protests from upset shareholders. While Fannie was able to raise $7.4 billion in capital earlier this year, Freddie Mac was unable to fulfill its promise to raise $5.5 billion in capital.

“The Fannie shareholders have a lot of questions that need to be answered from their board of directors,” said Doug Daschille, chief executive of investment firm First Principles Capital Management.

Other financial names rallied, particularly those seen as having big exposure to mortgages. Bank of America Corp. jumped $2.50, or 7.7 percent, to $34.73, while Wachovia Corp. rose $2.24, or 13.4 percent, to $18.99. Citigroup Inc. rose $1.25, or 6.6 percent, to $20.32.

Among financials, Lehman Brothers Holdings Inc. was one of the few decliners, falling $2.05, or 12.7 percent, to $14.15 as investors worried that the No. 4 U.S. investment bank was having trouble finding an investor to help shore up its balance sheet.

Home builders also gained ground alongside most financials. Lennar Corp. rose $1.39, or 10.3 percent, to $14.95, and KB Home advanced $2.93, or 14.2 percent, to $23.54.

In the tech space, SanDisk Corp. fell $1.04, or 5.9 percent, to $16.60, while Apple Inc. fell $2.26 to $157.92. Investors are worried the slowing economies overseas will damp demand.

The U.S. government’s plan also touched off a global stock rally Monday. Japan’s Nikkei stock average jumped 3.4 percent and Hong Kong’s Hang Seng index surged 4.3 percent. Britain’s FTSE 100 jumped 3.92 percent, Germany’s DAX index rose 2.22 percent, and France’s CAC-40 surged 3.42 percent.

Light, sweet crude for October delivery rose 11 cents to settle at $106.34 a barrel on the New York Mercantile Exchange. Hurricane Ike fanned unease about the well-being of Gulf of Mexico oil infrastructure that could be in its path.

In corporate news, Washington Mutual Inc. fell 15 cents, or 3.5 percent, to $4.12 after removing Kerry Killinger from the chief executive spot.

United Airlines parent UAL Corp. fell $1.38, or 11 percent, to $10.92 but came well off its lows of the session after the company said an old news report about the company’s 2002 bankruptcy filing appeared on a newspaper Web site Monday, stirring fears that the company was filing again. United, which emerged from bankruptcy in February 2006, said reports that it filed for bankruptcy were “completely untrue.”

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 1.5 billion shares.

The Russell 2000 index of smaller companies rose 14.01, or 1.95 percent, to 732.86.


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