* Rescue plan for Freddie, Fannie restores markets
* Still, Merrill cuts GSEs share price targets
* Belgium's InBev buys Anheuser-Busch in sweetened deal
By Ellis Mnyandu
NEW YORK, July 14 U.S. stocks headed for a
higher open on Monday, buoyed by the government's rescue plan
for mortgage finance companies Fannie Mae FNM.N and Freddie
Mac FRE.N and optimism about a $52 billion deal to acquire
No. 1 U.S. brewer Anheuser-Busch Cos Inc (BUD.N).
As calm returned to markets around the world after
Washington's weekend emergency action, Wall Street was poised
to open higher after Friday's sell-off.
Fannie Mae and Freddie Mac shares each jumped more than 20
percent before the bell after the Treasury Department and
Federal Reserve unveiled sweeping measures to lend money and
buy equity if needed to shore up the government-sponsored
enterprises. For details, see [ID:nN11340394]
Nevertheless, citing the chances of credit losses dragging
on the stocks, Merrill Lynch cut its price targets on the two
mortgage finance providers. Merrill Lynch reduced Freddie Mac's
price target to $7 from $20 and cut its price target on Fannie
Mae to $9 from $22. [ID:nWNA0527]
Last week's sudden plunge in the shares of the twin
pillars of the U.S. housing market was fanned by fears they
might be undercapitalized.
S&P 500 futures SPc1 jumped 15.30 points, above fair
value, a mathematical formula that evaluates pricing by taking
into account interest rates, dividends and time to expiration
on the contract.
Dow Jones industrial average futures DJc1 climbed 111
points, and Nasdaq 100 NDc1 futures rose 21.50 points.
"The move to shore up Fannie and Freddie was inevitable.
All last week the situation felt like Bear Stearns," said
Arthur Hogan, chief market analyst at Jefferies & Co in Boston,
referring to the government-arranged sale of the beleaguered
Wall Street brokerage in March.
"We knew the government was going to step in and get some
sort of package together to guarantee both of these guys, and
that's what we are getting. So I think the market is going to
react positively in the near term."
But he cautioned, "If you remember what happened after the
Bear Stearns bailout, we bounced a little bit too, but it
doesn't mean we don't have more problems."
Any collapse by Fannie or Freddie could cause major damage
to the U.S. economy and the global financial system, many
Underscoring the financial sector's continuing problems,
federal banking regulators seized failed mortgage lender
IndyMac Bancorp Inc IMB.N late on Friday after a run on the
bank. It was the third-largest U.S. bank failure.
In deal news, Anheuser-Busch accepted a sweetened $52
billion takeover bid from Belgium-based InBev NV INTB.BR to
create the world's largest beer maker and end a month-long
Freddie Mac is scheduled to hold a $3 billion sale on
Monday of short-term debt, seen as a key test of investor
confidence. Shares of Fannie Mae rose to $13.80, up 34.6
percent before the bell, and Freddie Mac shares rose 34.2
percent to $10.40. Anheuser-Busch climbed 1.7 percent to $67.63
before the bell.
The Fed said Fannie Mae and Freddie Mac, which own or
guarantee about $5 trillion in mortgages, could access its
discount window for emergency cash while the Treasury said it
would temporarily increase its line of credit to the two, as
well as purchase equity in them, if necessary.
(Editing by Kenneth Barry)