INSTANT VIEW: Paulson offers no hint of GSE rescue

NEW YORK (Reuters) - U.S. Treasury Secretary Henry Paulson said on Friday that the Treasury Department's chief aim at present is to back government-sponsored mortgage buyers Fannie Mae and Freddie Mac in their "current form."

KEY POINTS: * "Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission," Paulson said in a statement issued in response to news stories about "contingency planning" on the fate of the major mortgage finance companies at Treasury. * Paulson's statement appeared at odds with a report in the New York Times that the Bush administration is considering plans to shut down and take over the mortgage enterprises, whose financial soundness has come into question amid a severe credit crunch and housing market downturn. * "We appreciate Congress' important efforts to complete legislation that will help promote confidence in these companies. We are maintaining a dialogue with regulators and with the companies," he said. * "OFHEO (The Office of Federal Housing Enterprise Oversight) will continue to work with the companies as they take the steps necessary to allow them to continue to perform their important public mission," he added.

COMMENTS:

OWEN FITZPATRICK, HEAD OF U.S. EQUITY GROUP, DEUTSCHE BANK

PRIVATE WEALTH MANAGEMENT, NEW YORK:

"It's hard to say what's going to happen with these two entities. Going into the weekend the markets are leery. Especially when you see transactions occur, it's too hard to say what's going to occur. The rumor mill has taken over to a large extent and the government and regulators are reacting to what's going on from that standpoint. These two companies are feeling a lot of pressure and I think it's wise on the part of the government to come out and make statements that they are going to support them in one way or another.

"I think it's (the statement) positive. Overall, if I'm a bond holder, it's obviously a big positive. If I'm an equity holder, I don't know. With equity holders there's still a lot of uncertainty out there even with a statement like that from Paulson."

KATHY LIEN, CHIEF STRATEGIST, DAILYFX.COM, NEW YORK:

"The market perceived Paulson's comments as bearish because unlike yesterday, he at least acknowledged today that Fannie and Freddie are facing some problems. There was also a lot of expectation built in the market about a possible bail out. People thought that if the government helped Bear Stearns, it would certainly step in for Fannie and Freddie."

PETER KENNY, MANAGING DIRECTOR, KNIGHT EQUITY MARKETS, JERSEY

CITY, NEW JERSEY:

"The bottom line is that we're in the middle of a financial Tsunami. This is a storm the likes of which this country hasn't seen."

"Paulson's comments were much anticipated by the market. The market right now needs to see results. It no longer gives anyone the benefit of the doubt."

STEPHEN SCHORK, EDITOR, THE SCHORK REPORT, PHILADELPHIA:

"This is fuel for the bullish fire, we are going to $150 (a barrel) on oil ...We are in bull market and a bull market that has been largely predicated on the weak dollar and more dollar weakness is going to be construed as bullish by the crude oil market."

T.J. MARTA, FIXED INCOME STRATEGIST, RBC CAPITAL MARKETS, NEW

YORK:

"This suggests no sweeping bailout. One action that could result is an increase in the Treasury's credit line to the GSEs to keep them afloat, should they need it."

"Bond yields are falling sharply and spreads are moving wider on these admittedly sketchy headlines."

FIRAS ASKARI, HEAD CURRENCY TRADER, BMO CAPITAL MARKETS,

TORONTO:

"All I have seen is basically there is not going to be a bailout. This is obviously not good news for equities and markets are a little jittery to say the least as evidenced by the absolute trashing of anything to do with mortgage stocks. It's not good news for the dollar, it's not good news for equities. I don't know what's what going to convince it (the government) the save Freddie Mac and Fannie Mae right now."

CARL LANTZ, U.S. INTEREST RATE STRATEGIST, CREDIT SUISSE, NEW

YORK:

"Initially, equities are selling off and bonds are rallying I guess just because it's not concrete enough from what the headlines are saying."

"I think people want something more explicit, which maybe will happen over the weekend."

BRET BARKER, PORTFOLIO MANAGER, METROPOLITAN WEST ASSET

MANAGEMENT, LOS ANGELES:

"While Paulson is making supportive comments to the GSEs, there was no suggestion of any imminent bailout -- nor enough specifics to the support they would give. The markets were looking for more from Paulson."

SHAUN OSBORNE, SENIOR CURRENCY STRATEGIST, TD SECURITIES,

TORONTO:

"Nothing Paulson said is going to do anything for the dollar. We'll see more pressure on the dollar and equities, as this was not what the market was looking for. There's concern that the FX market is starting to look disorderly, which means the possibility of intervention is creeping up a bit, though for now, I think it's still relatively low probability because it's incompatible with expectations of more ECB hikes. But if the euro cracks above $1.5950, I think we could see $1.60 this morning."

LOU BRIEN, MARKET STRATEGIST, DRW TRADING, CHICAGO:

"There is no talk of a bailout. There is a reversal of the earlier trades away from Treasuries and into agencies. They probably planted the seeds (of a takeover) in the (New York Times) story, but they are not ready to take this next step."

MICHAEL WOOLFOLK, CURRENCY STRATEGIST, BANK OF NEW YORK MELLON,

NEW YORK:

"Not the type of thing that the markets would react strongly to. It is designed more to signal policy intent than manage market expectations. He left his cheer-leading outfit in the drawer."

MARKET REACTIONS: BONDS: U.S. Treasuries pare losses CURRENCIES: U.S. dollar extends losses STOCKS: U.S. equity indexes extend losses FANNIE MAE, FREDDIE MAC SHARES: Held steep losses on the session

EARLIER DATA FROM JULY 11: U.S. trade gap narrows unexpectedly in May