European Stock-Index Futures Rally on Fannie, Freddie Rescue

By Michael Patterson

Sept. 8 (Bloomberg) -- European stock-index futures surged on speculation the U.S. government's takeover of Fannie Mae and Freddie Mac will shore up the mortgage market and stem losses at financial firms that have already topped $500 billion worldwide.

UBS AG, HSBC Holdings Plc and Deutsche Bank AG may climb after Treasury Secretary Henry Paulson said the government will provide short-term funding to the two biggest U.S. mortgage- finance companies and purchase debt backed by home loans in the open market. BP Plc and Total SA may advance after oil and gasoline jumped on a slump in the dollar and Hurricane Ike's approach toward rigs in the Gulf of Mexico.

Futures on the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, gained 121, or 3.8 percent, to 3,306 at 7:33 a.m. in London. The U.K.'s FTSE 100 Index may increase 177, according to CMC Markets, a betting firm.

The takeover of Fannie Mae and Freddie Mac ``is the beginning of the end of the problem,'' Lucy MacDonald, the London-based chief investment officer of global equities at RCM Ltd., which has $100 billion under management, said in an interview on Bloomberg Television. ``This should give more confidence in any company with assets in the area. We'll see a floor put under financial shares.''

Europe's Dow Jones Stoxx 600 Index has tumbled 25 percent this year, led by financial shares, as the biggest surge in mortgage defaults in at least three decades sparked writedowns and losses at banks from UBS to Royal Bank of Scotland Group Plc and Credit Suisse Group AG. All 18 industries in the European stock benchmark retreated in 2008 as a drop in lending magnified the global economic slump that pushed the euro-region to the brink of a recession.

Asia, U.S.

Asian stocks rallied the most in seven months and Standard & Poor's 500 Index futures jumped 2.9 percent. Treasuries fell the most in almost two months as investors regained confidence to buy higher-yielding assets.

Paulson and Federal Housing Finance Agency Director James Lockhart yesterday placed Fannie Mae and Freddie Mac, which make up almost half the U.S. home-loan market, in a government- operated conservatorship. The Treasury may purchase up to $200 billion of stock in the firms to keep them solvent.

UBS, the European bank hardest hit by subprime-related losses, may climb. HSBC, Europe's biggest bank by market value; and Deutsche Bank, Germany's largest bank, may advance.

``There's only one story that means anything as the new trading week gets underway and that's the nationalization of Fannie Mae and Freddie Mac,'' said Matt Buckland, a trader at CMC Markets in London. The takeover ``should take a lot of uncertainty out of the market in one quick move.''

Trading Halted

The takeover announced yesterday replaced the government- sponsored companies' chief executives and eliminated their dividends, leaving common stockholders last in line for any claims. The New York Stock Exchange said trading in common and ``related'' preferred stock of Fannie Mae and Freddie Mac will be halted until the official open of U.S. exchanges at 9:30 a.m. New York time.

American depositary receipts of BP, Europe's second-largest oil company, ended 0.7 percent higher than the close in London on Sept. 5. ADRs of Total, the region's third-biggest, gained 0.6 percent from the close in Paris.

Oil rebounded from a five-month low as the dollar dropped against the euro and the approach of Hurricane Ike delayed production from restarting in the Gulf of Mexico. Crude for October delivery rose as much as $2.72, or 2.6 percent, to $108.95 a barrel in after-hours electronic trading on the New York Mercantile Exchange.

British Energy

British Energy Plc may be active. Shareholders of the company whose power stations produce about a sixth of the U.K.'s electricity want an additional 1.5 billion pounds ($2.6 billion) from Electricite de France SA to support its takeover of the company, the Observer reported, citing people it did not identify. British Energy owners want EDF to pay up to 1 pound per share more, after EDF made a 765 pence a share cash offer for the company in July, the Observer said.

A message seeking comment left with EDF spokesman Craig Breheny on his mobile phone outside office hours was not immediately returned.

Woolworths Group Plc may move. Iceland Foods Ltd. Chief Executive Officer Malcolm Walker has held talks with the U.K. retail chain's largest investor to discuss details of a possible takeover of the company, the Financial Times said, without saying where it got the information.

Walker, leading a group led by Icelandic investment company Baugur Group hf to buy Woolworths, met with Ardeshir Naghshineh, who holds a 10.2 percent stake, the newspaper said. Naghshineh last month backed the U.K. retailer's rejection of a bid by the group, the FT said.

Swiss Re, Air France

Swiss Reinsurance Co. may be active after the world's second-largest reinsurer said accelerating inflation in the U.S. and Europe may undermine the insurance industry's capital base and it expects rates to continue to fall.

Air France-KLM Group, Europe's biggest airline, said passenger traffic rose 2.8 percent last month, led by travel to the Americas. The load factor, or proportion of seats filled, 4.7 percent, Air France-KLM said.

European stocks posted their steepest decline in five years last week on concerns that slowing growth will curb earnings at commodity producers while banks will face higher costs as the European Central Bank tightened lending rules.

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.