(RTTNews) - Investors are buying up stocks in morning trading on Monday following news that the government is bailing out Freddie Mac (FRE) and Fannie Mae (FNM). The news has reversed some of the negative sentiment seen in the previous week.

Over the weekend, the Treasury Department announced that it was taking control over the mortgage giants, who own or back about half of the nation’s mortgage debt. The news has renewed hopes for a turnaround in the housing market.

As part of the plan, the Federal Housing Finance Agency will assume the power of management at the companies while also replacing the chief executives at both firms. Additionally, the plan calls on the Treasury Department to purchase $5 billion of mortgage-backed securities within the next month.

Adding to the positive mood on Wall Street, Altria Group (MO) said it has agreed to acquire UST Inc. (UST), the world’s leading moist smokeless tobacco maker, for $69.50 per share in cash. The transaction is valued at approximately $11.7 billion, which includes the assumption of about $1.3 billion of debt.

In other news, General Electric (GE) announced that the Securities and Exchange Commission staff has issued a wells notice indicating that it is considering recommending that the SEC bring a civil injunctive action against the company for possible violations of securities laws.

The company said that the notification relates to issues over its accounting for derivatives formerly used to hedge the risk of interest rate changes related to commercial paper and for certain derivatives in which a fee was a part of the consideration for the derivative.

In recent trading, the major averages have been trading in a range after paring some of their earlier gains. The Dow is currently up 265.68 at 11,486.64, the Nasdaq is up 21.02 at 2,276.90 and the S&P 500 is up 25.05 at 1,267.36.

Sector News

Housing stocks are turning in some of the best performances following the news that the government will bail out Freddie Mac and Fannie Mae. The Philadelphia Housing Index is soaring 6.2 percent, adding to a modest gain posted in the previous session. With the gain, the index set a three-month intraday high earlier in the session.

Within the housing sector, Meritage Homes (MTH) and Lennar Corp. (LEN) are among the biggest gainers. Meritage Homes is up 15 percent, compared to a 9.8 percent gain by Lennar Corp.

Bank stocks are also benefitting from the news on Freddie Mac and Fannie Mae, with the KBW Bank Index climbing 5.2 percent. Earlier in the day, the index set a three-month intraday high. Adding to the strength in the bank sector, a Friedman Billings Ramsey analyst upgraded several regional banks that are exposed to the housing market.

Elsewhere in the financial sector, brokerage stocks are sharply higher as well. The Amex Securities Broker/Dealer Index is up 2.7 percent, adding to a modest gain posted in the previous session. Morgan Stanley (MS) and Merrill Lynch (MER) are among the stocks seeing the biggest increases, up 4 percent and 3 percent, respectively.

Retail stocks are also seeing significant buying interest, with the S&P Retail Index rising 3.6 percent. Earlier in the session, the index set a four-month intraday high. Real estate, rail road and health insurance stocks are higher as well.

On the other hand, airline stocks are showing considerable weakness, hurt by an increase in oil prices. The Amex Airline Index is falling 2.7 percent, reversing the gain posted in the previous session. Within the airline sector, Continental Airlines (CAL) is falling 4.9 percent. On Friday, the airline announced a $15 service fee for the first checked bag for certain customers who purchase economy-class tickets.

Semiconductor and disk drive are showing modest weakness as well. The Philadelphia Semiconductor Index is down 0.4 percent, while the Amex Disk Drive Index is down 0.6 percent.

Stocks Driven By Analysts Comments

Among individual stocks, Prudential Financial (PRU) is seeing significant buying interest after it was upgraded at Friedman, Billings, Ramsey. The analyst upgraded the stock to an Outperform rating, citing benefits from the government’s takeover of Freddie Mac and Fannie Mae.

Shares of the financial institution are currently up 7.1 percent, adding to a gain posted in the previous session. Earlier in the day, the stock set a seven-month intraday high.

Nalco Holding (NLC) is also posting a notable gain after a Goldman Sachs analyst upgraded the stock to a Neutral rating. The analyst said that the company’s value proposition appears more positive. The stock is up 4.2 percent.

On the other hand, RF Micro Devices (RFMD) is showing considerable weakness after a Citigroup analyst downgraded the stock to a Hold rating from a Buy rating. Shares of the radio frequency component manufacturer are currently down 8.6 percent, extending a recent downtrend.

Other Markets

Overseas, most of the major Asian markets advanced solidly on Monday on the back of the U.S. government’s efforts to save Fannie Mae and Freddie Mac. Japan’s Nikkei 225 average closed up 3.4 percent at 12,625.

The European markets are trading higher as well, with the French CAC 40 Index and the German DAX Index rising 4.2 percent and 2.8 percent, respectively. The U.K.’s FTSE 100 Index is advancing 3.8 percent. The London Stock Exchange was halted due to a technical glitch, which led to the longest trading halt in more than eight years.

On the economic front, The UK National Statistical Office reported on Monday that the U.K.’s producer prices fell an unadjusted 0.6 percent in August due to a decline in the prices of petroleum and other manufactured products. The core output price index for August eased 0.1 percent on a seasonally adjusted basis compared to 0.3 percent growth expected by economists. Annually, the output price index climbed 9.7 percent compared to a 10.3 percent increase in July.

Meanwhile, treasuries are seeing considerable weakness in morning trading, although the benchmark ten-year note has moved well off of its worst level of the day. Subsequently, the yield on the ten-year note is currently up 6.5 basis points at 3.725 percent.

For comments and feedback: contact editorial@rttnews.com

Copyright(c) 2008 RealTimeTraders.com, Inc. All Rights Reserved

Posted in Categories: Economy, Eurozone, Japan, Releases, UK, USA.

Subscribe by RSS Subscribe by Email  Email This Post To A Friend