Jittery markets across Europe beat back the bears yesterday on merger and acquisition activity and news of the plan to shore up US mortgage giants Fannie Mae and Freddie Mac - but Wall Street could not hold on.
Jittery markets across Europe beat back the bears yesterday on merger and acquisition activity and news of the plan to shore up US mortgage giants Fannie Mae and Freddie Mac - but Wall Street could not hold on.
European investors cheered Alliance & Leicester's agreed deal with Abbey-owner Santander, while takeover rumours in the mining sector and relief at the Federal Reserve's temporary support and longer-term US Treasury plan for Fannie and Freddie helped most of the markets.
Many were also boosted by InBev, which announced a successful bid for brewer Anheuser-Busch and rose 4% in Brussels. The deal will create the world's largest beer company.
Meanwhile, the benchmark FTSE-100, whose earlier gains ebbed away with Wall Street's decline, ended the day up 38.8 points at 5300.4. Meanwhile, Frankfurt's Xetra Dax was 0.8% higher at 6200.25 and the CAC 40 in Paris jumped 1.02% to 4142.53.
The Dow Jones Industrial Average, the barometer of US market sentiment, opened more than 100 points higher - apparently with a sigh of relief - but, after an hour, it plunged into negative territory and the session closed down 45.35 points at 11,055.19, as the excitement over the plan to rescue Fannie and Freddie subsided.
However, in an initial test of one of the company's borrowing ability, Freddie Mac's auction of $3bn of short-term debt drew strong demand.
The deal, announced on Sunday to calm markets yesterday, would give the Fed and the Treasury the power to inject billions of dollars into the companies through investments and loans, easing concerns of failure at the two companies, which together underwrite nearly half of all mortgage lending in the US - some $5trillion.
The Fed said it would make one of its short-term lending schemes available to Fannie and Freddie, and it had made its decision "to promote the availability of home mortgage credit during a period of stress in financial markets".
However, the decision to permit the companies to borrow from this so-called discount window is expected to be temporary and is likely to end after Congress approves the Treasury plan that could extend a line of credit worth $300bn to the companies.
It is anticipated Congress will attach the Treasury plan to a housing bill that could be sent to the White House for approval later this week or early next week.
