U.S. banks', brokers' credit protection costs fall

NEW YORK (Reuters) - The cost of protecting banks' and brokers' debt with credit default swaps fell on Monday after the government seized control of Fannie Mae (FNM.N) and Freddie Mac (FRE.N) to support the U.S. housing market and stabilize global markets.

Five-year credit default swaps for Wachovia Corp WB.N fell over 10 percent to 278 basis points, or $278,000 a year to protect $10 million of debt, down from 310 basis points at Friday's close, according to data from Phoenix Partners Group.

Morgan Stanley's (MS.N) five-year credit default swaps fell by 26 basis points to 200 basis points, while Merrill Lynch's MER.N swaps fell by 25 basis points to 285 basis points.

Five-year swaps on Bank of America (BAC.N) fell by 13 basis points to 122 basis points, while Citigroup's (C.N) five-year swaps narrowed by 12 basis points to 158 basis points and Lehman Brothers' LEH.N swaps narrowed by 19 basis points to 300 basis points, according to Phoenix Partners.

Financial shares were also poised to rally after the government on Sunday seized control of the government-sponsored enterprises, a move that analysts expect will shore up confidence in the battered financial sector.

"The GSE issue was an overhang for the market, and its removal is clearly a healthy development," Barclays Capital said in a research note.

(Reporting by Dena Aubin, Editing by Jonathan Oatis)