Wall Street Cheers Bailout

News at a Glance

• Big Gains: Stocks soar as traders welcome mortgage relief.
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• Fannie, Freddie Bailed Out: U.S. government acquires GSEs.
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• Global Rally: World markets cheer Treasury's decision.
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• WaMu Replaces CEO: Fishman to take over for Killinger.

The Lowdown

Blue chips posted big gains a day after the Treasury said Fannie Mae (FNM) and Freddie Mac (FRE) would be temporarily run by the federal government. The Dow Jones Industrial Average picked up 290 points to finish the day at 11511, a gain of 2.6%.

The broader indexes also advanced after wavering throughout the afternoon. The Nasdaq picked up 14 points at 2270, and the S&P 500 climbed 25 to 1268.

Financials led the rally, as those firms have the largest and most immediate stake in the stabilization of the housing market. Consumer-oriented stocks, capital goods and telecoms also performed well. Techs were fairly flat. Materials and energy took a step back.

Shares of Fannie and Freddie fell to less than $1 each. Under the housing deal, the Treasury will extend as much as $200 billion in credit to Fannie and Freddie to keep the firms afloat in the midst of rising foreclosures and loan defaults. The mortgage backers will be overseen by the Federal Housing Finance Agency.

"Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe," Treasury Secretary Henry Paulson said. "This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement."

Paulson added the collapse of the firms would have hampered economic growth and created a new hurdle for the labor market.

Meanwhile, oil prices wavered, as traders shifted their focus away from the weather and back toward handicapping demand. By 3:58 p.m., crude traded up 16 cents on the day at $106.39 a barrel. Retail gas prices pulled back for the eighth straight day, according to AAA's latest Fuel Gauge Report.

The Treasury's decision resonated throughout the world's markets. In Asia, Japan's Nikkei jumped 3.4%, while Hong Kong's Hang Seng climbed 4.3%. The major European indexes finished higher, as well.

Corporate News

• Boeing (BA) workers remained on strike for the third straight day, and neither party appeared set to return to the table, The Seattle Post-Intelligencer reported. Twenty-eight thousand members of the International Association of Machinists walked off the job Saturday in Washington, Kansas and Oregon, effectively halting the construction of new planes.
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• Washington Mutual (WM), the nation's largest savings and loan, forced out chief executive Kerry Killinger, The Wall Street Journal reported. Killinger, who had run the company since 1990, will be replaced by Alan Fishman, the former president and chief operating officer of Sovereign Bank, WaMu said. The bank's shares have lost 85% of their value since the start of the mortgage crisis last year.
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• Lehman Brothers (LEH) made several 'two-is-better-than-one' changes to its senior management, the firm said. Eric Felder and Hyung Soon Lee will replace Andrew Morton as the global chiefs of fixed income. Separately, Riccardo Banchetti and Christian Meissner were named co-chief executive officers of the firm's European and the Middle Eastern units. They will replace Jeremy M. Isaacs, who plans to retire at the end of the year.
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• Altria (MO) agreed to acquire UST (UST) for about $10.3 billion to become the nation's largest producer of smokeless tobacco products, the firm said. The deal, which puts the Skoal and Copenhagen brands under the same roof as the Marlboro Man, is valued at $11.7 billion, including the assumption of $1.3 billion in debt.

The Economy

• The July report on consumer credit is scheduled to be released Monday at 3 p.m. by the Federal Reserve. In June, consumer borrowing rose by $14.3 billion. For July, economists expect borrowing to have risen by $8.5 billion.

ReadMe

• The New York Times on how the bailout affects you: Home prices are likely to stabilize; homeowners are likely to refinance; and shares of the companies (and the funds that invested in them) are likely to suffer. STORY
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• The Wall Street Journal on what's next: The government's takeovers may signal a return to greater federal involvement in business, including home ownership and financial regulation. STORY
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• The Washington Post on the firms' new leaders: The paper profiles Herbert M. Allison Jr. and David M. Moffett, the new chiefs of Fannie and Freddie. STORY

WatchMe

• Bloomberg on the bailout: Treasury Secretary Henry Paulson called his department's actions "necessary." VIDEO
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• CNBC on the credit markets: Steve Forbes, chairman chief executive of Forbes, and Arjuna Mahendran, managing director and head of Asian investment strategy at HSBC Private Bank, discuss how the Treasury's moves will affect bank lending. VIDEO
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• Monday Night Football: The season opens with a double-header. First, the Vikings take on the Packers in Green Bay. Then, the Broncos visit the Raiders in Oakland. ESPN, 7 p.m.
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