FTSE soars on Fannie and Freddie nationalisiation

The FTSE 100 bounced back almost 200 points this morning as markets around the world were bouyed by the US government’s bailout of mortgage companies Freddie Mac and Fannie Mae.

The bounce in the blue-chip index was widely predicted by market analysts after the two firms were taken into temporary public ownership, but this morning’s gains surpassed general forecasts of a 170-point uplift. Shortly after London markets opened, the FTSE 100 was trading at 5440.2, up 199.5 points or 3.8% on Friday night’s close of 5240.7.

However it soon became impossible to judge the true scale of the rally, as the London Stock Exchange was hit by “connectivity issues” – leaving share prices and the wider market stuck for at least two hours. Analysts predicted that the FTSE could be up by as much as 260 points.

Last week the index of London’s top 100 companies fell nearly 400 points as investors lost confidence in the UK’s economic prospects.

The biggest gainers this morning – at least before the LSE’s systems gummed up – were the banks: HBOS shares soared by 18%, Lloyds TSB rose 15% and RBS was up 14%.

The positive reaction in London was matched by a 2.8% lift in the Dax in Frankfurt while the CAC, the French bourse, jumped 4%.

The bounce recorded on the European exchanges followed earlier gains in Asian markets. Japan’s Nikkei 225 stock index was up more than 400 points, or 3.4%, in afternoon trading, while Hong Kong’s Hang Seng index rose 3.9%. Markets in Seoul, Singapore, Taiwan and Australia also recorded gains.

The bailout of Freddie Mac and Fannie Mae – which account for half of all mortgages in the US – followed months of speculation about their future. They have struggled to remain solvent over the past year, after bearing the brunt of the sub-prime crisis.

The US treasury secretary, Henry Paulson, announced yesterday that the Federal Housing Finance Agency, formerly the regulator of the two companies, would run both businesses. Their current management has been replaced and further funds would be made available, he said.

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