NEW YORK - U.S. stock futures pointed to a huge rally Monday as investors rushed to lay bets on a broad economic recovery following the weekend announcement that the U.S. government plans to bail out mortgage lenders Fannie Mae and Freddie Mac. Stock futures jumped more than 2 percent.
Meanwhile, bond prices fell sharply as emboldened investors looked for riskier but higher-yielding bets.
The announcement Sunday that the Treasury Department was seizing control of the companies, which own or back about half the nation's mortgage debt, brushed aside investors' persistent worries that the companies would be felled by a spike in bad mortgage debt.
The plan to inject up to $100 billion in each of the government-chartered mortgage giants could not only help lower mortgage rates but, some investors are hoping, buoy the overall economy. The plan could help banks feel more open to write new mortgages and to refinance existing mortgages at lower rates, offering a possible lifeline to consumers struggling with increasing payments.
The government's steadying hand for two institutions that many Wall Street observers had said were simply too big to let fail still might not alleviate troubles of some homeowners who have fallen behind on their mortgages.
Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams in New York, said 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 preferable to a collapse of Fannie Mae or Freddie Mac.
"It saves from 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."
Dow Jones industrial average futures surged 263, or 2.34 percent, to 11,490. Standard & Poor's 500 index futures rose 39.30, or 3.17 percent, to 1,280.40. And Nasdaq composite index futures rose 39.25, or 2.22 percent, to 1,809.25. Stocks finished last week with steep losses amid worries about the overall economy and the financial sector.
Bond prices pulled back sharply Monday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 3.78 percent from 3.69 percent late Friday. The dollar was higher against other major currencies, while gold prices rose.
The U.S. government's plan touched off a global stock rally Monday even though common shareholders of the stock of Fannie Man and Freddie Mac will be virtually wiped out by the plan, which would balloon the shares of companies to give a nearly 80 percent stake to the government. The companies' shares had already logged huge declines in the last year so many shareholders have already endured the majority of their losses.
But foreign investors holding debt of the companies were relieved as were investors simply looking for stronger growth from the U.S. economy, particularly as many economies abroad give off signs they are slowing. Japan's Nikkei stock average jumped 3.4 percent and Hong Kong's Hang Seng index surged 4.3 percent. In afternoon trading, Britain's FTSE 100 jumped 3.81 percent, Germany's DAX index rose 3.50 percent, and France's CAC-40 surged 4.44 percent.
Investors appeared to look past a rise in oil, which logged steep declines last week as investors worried that a slowing global economy would hurt demand. Light, sweet crude rose $2.67 to $108.90 in premarket electronic trading on the New York Mercantile Exchange.
In corporate news, Washington Mutual Inc. said it has removed Kerry Killinger from the chief executive spot. The savings and loan is working to overhaul its business, which has been hurt by bad mortgage debt. Alan H. Fishman is replacing Killinger.
Altria Group Inc. announced it will buy UST, the maker of Skoal and Copenhagen smokeless tobacco, for nearly $10 billion. The maker of Marlboro cigarettes said it will pay $69.50 per share. UST shares jumped Friday to finish at $67.55 following a report of the deal.