TSX gives up early gains from U.S. mortgage bailout

World stock markets surged early Monday after Washington announced a takeover of mortgage giants Fannie Mae and Freddie Mac, but the rally was short-lived in Toronto, where the TSX composite index soon slid back into red figures.

World stock markets surged early Monday after Washington announced a takeover of mortgage giants Fannie Mae and Freddie Mac, but the rally was short-lived in Toronto, where the TSX composite index soon slid back into red figures.

The TSX had soared more than 350 points in the early going as investors reacted positively to the U.S. government's move, which was expected to help bolster a shaky U.S. housing market and renew global investor confidence.

But by early afternoon, the TSX had given up those gains and more, trading down 181.59 points to 12,634.83 by the end of the day.

New York fared somewhat better, where the Dow Jones was up 290.43 points, closing up 2.59 per cent at 11,510.74.

Markets in Asian and Europe held on to most of their gains.

Japan's benchmark Nikkei 225 index surged  3.4 per cent to 12,624.46, while Hong Kong's Hang Seng index advanced 4.3 per cent to 20,794.27. Seoul's Kospi rose 5.2 per cent.

In Europe, Britain's FTSE 100 was up 3.9 per cent, Germany's DAX climbed 2.2 per cent and France's CAC 40 was up 3.4 per cent.

The U.S. Treasury's decision Sunday to take control of the two financial institutions, which own or guarantee about half of U.S. mortgage debt, removes a big cloud that had been hanging over global markets.

Global investors have been growing increasingly anxious that financial turmoil and fallout from the U.S. credit crunch might trigger a wider global slump or recession.

Japan and Australia applauded the move.

"We welcome the plan as an appropriate measure as it is believed to contribute to stabilizing the financial markets," Japanese chief cabinet secretary Nobutaka Machimura was quoted as saying by Kyodo News.

"I think what the American authorities have done, in the brief look I've had, it is the right thing," said Glenn Stevens, the head of Australia's central bank, at an appearance before a parliamentary committee in the southern city of Melbourne.

"Their implications are likely to be positive for markets because it's a source of uncertainty close to resolution," he said.

Jacky Choi, a Hong Kong-based fund manager at Value Partners Ltd., which manages about $5 billion in assets in Asia, said the U.S. move comes as a relief to the many Asian governments and institutions with the mortgage giants' debt on their books.

He added, however, that Monday's surge didn't necessarily foreshadow a broader turnaround and noted that trading volumes weren't very large in some markets. Many investors were still hesitant to place long-term bets, he said.

"There's not really a sentiment change. People are still reluctant," Choi said. "It takes time for sentiment to recover in a market like this."

Japanese banks notch double-digit gains

For now, the news injected life into financial issues, with major Asian banks the big winners of the day.

Japanese megabank Mitsubishi UFJ Financial Group Inc. shot up 13 per cent, Sumitomo Mitsui Financial Group Inc. jumped 15 per cent, and Mizuho Financial Group Inc. rebounded 12 per cent.

In Sydney, the Commonwealth Bank of Australia rose 7.9 per cent, and National Australia Bank 6.4 was per cent higher.

Hong Kong's HSBC soared 5.5 per cent, and China's biggest lender ICBC rose 3.7 per cent.

Nomura Holdings Inc. jumped 9.7 per cent following weekend reports that Japan's largest brokerage group is considering buying a stake in U.S. investment bank Lehman Brothers. Nomura has funds exceeding $1.87 billion for investment in U.S. and European financial institutions and is considering Lehman as one of its investment candidates, Nomura President Kenichi Watanabe was quoted as saying by the Japanese newspaper Yomiuri.

Bucking the regional trend was China's Shanghai Composite index, which fell 2.7 per cent to 2,143.42 — its lowest close since Dec. 8, 2006. Worries over the economic outlook overshadowed news of a plan by a market regulator to help ease an oversupply of newly tradable shares.

Chinese refiners led the decline on expectations that the government might put off widely anticipated plans to raise retail fuel prices, which are kept below international levels to help curb inflation, due to the recent decline in global crude oil prices.

Elsewhere, Taiwan's key index shot up 5.6 per cent, as investors took a cue from a planned government package to stimulate the sagging economy.

India's Sensex jumped 4.1 per cent on news that India will be allowed to buy nuclear fuel and technology for civilian use, as well as the Fannie Mae and Freddie Mac plan.

Monday's gains in Asia follow a dismal trading session Friday when concerns about the U.S. economy and its impact on global growth sent markets tumbling across the region.

With files from the Associated Press