Fannie Mae, Freddie Mac shares jump again

By Al Yoon

NEW YORK (Reuters) - Investors snapped up shares of Freddie Mac (FRE.N) and Fannie Mae (FNM.N) for a second day on Thursday after Freddie pulled off its second successful debt sale following Sunday's announcement of a U.S. rescue plan for the two housing finance companies.

Shares of the two pillars of the U.S. housing market surged 17 percent, adding to equally sharp gains earlier this week, helped by stronger-than-expected earnings at JPMorgan Chase & Co (JPM.N). Freddie was at $7.99 and Fannie at $10.78 in midday trading on the New York Stock Exchange.

Freddie Mac issued $3 billion of two-year notes in a regularly scheduled sale, supported mostly by central banks that have been boosting purchases of the government-sponsored enterprises' debt throughout the decade. Central banks bought 57 percent of the issue, slightly more than usual, said Timothy Bitsberger, treasurer at the McLean, Virginia-based company.

Demand from central banks and other international investors is seen as a key barometer for the borrowing abilities of Freddie Mac and Fannie Mae, which use more than $1.6 trillion in debt to finance purchases of U.S. mortgages. Sharp falls in the companies' share prices last week on doubts of their capital levels led to increased scrutiny of the debt sales.

Yield spread premiums narrowed after Thursday's sale, a move "that speaks volumes about the underlying strength that exists in the marketplace," Bitsberger said.

At least one non-U.S. investor has turned away from debt of the government sponsored enterprises, or GSEs. The sovereign wealth fund of Kuwait is not planning on adding any agency debt, Mustapha al-Shamali, the country's finance minister, said on Thursday.

A plan announced on Sunday by the U.S. Treasury and Federal Reserve to shore up Freddie Mac and Fannie Mae balance sheets and borrowing capabilities, if needed, should be approved by Congress swiftly, Anthony Ryan, an acting U.S. Treasury under secretary, said in a CNBC interview on Thursday.

The plan, which has helped firm investor confidence, would send a strong message to financial markets that the companies have resources, Ryan said.

Investors sensing the need for Fannie Mae and Freddie Mac to raise capital, which would dilute existing shares, sent their stock prices down more than 60 percent this month.

The shares were helped by an emergency rule issued on Tuesday by U.S. securities regulators to limit certain types of short selling in major financial companies, including Fannie Mae and Freddie Mac.

While the storm surrounding the companies appears to be easing, they still face mounting losses due to delinquent borrowers, rising foreclosures and pressure to increase their exposure to the mortgage market as a way of stabilizing housing.

Together, they own or guarantee more than $5 trillion in U.S. mortgages. They have lost more than $11 billion since June, and have predicted more losses to come.

A Moody's Investors Service report on Thursday said the threat to Asian banks from holdings of Fannie Mae and Freddie Mac mortgage securities is limited.

(Editing by Dan Grebler)