Market Springs to Life on Fannie, Freddie News

Updated from 9:07 a.m. EDT

U.S. stocks were roaring higher Monday after the U.S. government said it would take over mortgage giants Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote).

The Dow Jones Industrial Average blasted up 327 points to 11,548, and the S&P 500 was gaining 31 points at 1274. The Nasdaq added 47 points to 2303.

Trading during the previous, Labor Day-shortened week was marked by high volatility and uncertainty about the economy's future. A drop in crude-oil prices failed to stoke significant buying ambition for equities, as traders worried that declining demand for commodities signaled a wide slowdown in growth.

On Sunday, the Treasury Department and Federal Housing Finance Agency said they would temporarily seize Fannie Mae and Freddie Mac, replacing the mortgage giants' CEOs, buying preferred shares of the companies and offering additional capital support as Fannie and Freddie wade through increasing home-buyer defaults.

The two government-sponsored entities -- which have issued more than $5 trillion in mortgage-backed securities and credit -- are central to the health of the U.S. home-lending market and are lynchpins of the financial sector. Investment bank Morgan Stanley (MS Quote) aided the government in its takeover of the firms.

Although news of their takeover was buoying the major indices, shares of Fannie and Freddie were getting destroyed. Fannie and Freddie were in a free fall, down 84% and 76%, respectively. Citigroup downgraded the stocks to sell from buy, and Lehman revised its rating on the pair to equal weight from overweight.

In other company news, struggling brokerage Lehman Brothers (LEH Quote) announced over the weekend that it would replace two members of senior management as it prepares to lay off between 1,000 and 1,500 employees.