FOREX-Dlr index at 1 yr high; Fannie, Freddie plan absorbed
* Dollar index hits one-year high, reverses earlier slide
* Freddie, Fannie plan digested, mkt reverts to fundamentals
* Yen slides broadly on renewed risk appetite
(Changes byline, adds quotes, updates prices)
By Veronica Brown
LONDON, Sept 8 (Reuters) - The dollar surged to a one-year high versus a basket of currencies on Monday, recovering from a knee-jerk slide after the U.S. government took control of Fannie Mae (FNM.N) and Freddie Mac (FRE.N).
Sunday's takeover of the battered mortgage giants, which own or guarantee half of the country's $12 trillion in outstanding home mortgage debt, was seen by some people as a positive step to stave off wider U.S. financial and housing market weakness.
It followed concern about growing losses at both, undermining the lenders as other sources of home lending have dried up. (For details please double click on [ID:nN07479172])
The dollar had initially fallen in the aftermath of the weekend action as investors took government support for the stricken mortgage agencies as an excuse to pile back into riskier assets, sending stock markets soaring and the safe-haven Japanese yen sharply lower.
Analysts said that while the news did much to allay concern about systemic financial market risk, it did little to change fundamentals that had started to drive the dollar up prior to the weekend - i.e. slowing growth in the euro area and UK.
"Markets are starting to revert back to fundamentals and investors are asking: What does this news do for short-term growth in the UK and euro zone? Nothing," UBS FX strategist Geoffrey Yu said.
"We're still carrying on down this path of a more stable U.S. economy which might lead the way in terms of a recovery but there's still lots to go in terms of a correction for Europe. This probably gave an even better reason to stay bullish on the dollar from a relative-value point of view," he added.
The dollar index .DXY, which measures the U.S. currency's value against six leading rival units, was up 0.9 percent at 79.208, having hit a one-year high earlier at 79.416.
The single European currency briefly fell to $1.4164 -- its lowest since October 2007 EUR=. The euro and other currencies has been struggling against the dollar on the view that global economies are vulnerable to U.S. economic weakness.
U.S. Treasuries sank and European shares rallied roughly 4 percent on the news of the conservatorship.
YEN SUFFERS
The dollar JPY= rose more than 1 percent to 109.08 yen JPY=, with the Japanese currency also falling against higher-yielding currencies as traders returned to riskier trades, dumping the low-yielding currency for assets in higher-yielding ones.
This reversed the yen's gains made on broad flight-to-safety buying last week, pushing up the Australian AUDJPY=R and New Zealand NZDJPY=R dollars as much as roughly 2 percent each.
Sterling reversed earlier gains versus the dollar after UK manufacturing output prices suggested that factory gate inflation might have peaked.
The pound stood at $1.7622, down 0.2 percent on the day GBP=. The euro was flat at 80.66 pence EURGBP=. (For details please double click on [nL8655100])
Analysts said euphoria surrounding the news of the Fannie and Freddie conservatorship could continue in the near term, but added that the impact of the rescue package on the U.S. economy may be limited and the longer-term outlook for the dollar remains unclear.
Economic weakness was highlighted on Friday, when figures showed a jump in the unemployment rate as the economy lost jobs for the eighth month in a row.
"Whether the Treasury's move is sufficient to more lastingly break the negative dynamics in the financial markets remains to be seen," analysts at Danske said in a research note.
"Plenty of troubles are still out there and with U.S. house prices still falling, it is too early to make any firm conclusions on the lasting impact of this intervention," they said, adding that U.S. growth remains "very shaky".
(Reporting by Veronica Brown; Editing by Victoria Main)
