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TheStreet Open House

Stocks Off Their Mortgage-Bailout Highs

Updated from 12:28 p.m. EDT

Blue-chip stocks were off their highs but still sharply positive Monday after the U.S. government said it would take over mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE). Technology shares, however, were dipping into the red.

The Dow Jones Industrial Average was up 174 points to 11,395, and the S&P 500 was gaining 13 points at 1256. The Nasdaq was down 6 points to 2250.

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) aided the government in its takeover of the firms.

Although news of their takeover was buoying the blue-chip indices, shares of Fannie and Freddie were getting destroyed, down 87% and 82%, respectively. Citigroup downgraded the stocks to sell from buy, and Lehman revised its rating on the pair to equal weight from overweight.

"I don't think it's a sucker's rally," said Marc Pado, U.S. market strategist at Cantor Fitzgerald. The takeover was necessary, he said. "Yeah, it's not going to end the crisis, but it's a step in the direction of ending it," he said. Although Pado believes the government should have acted sooner, he said the takeover has restored confidence to the market.

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