Stocks Hold to Solid Bailout Gains

Updated from 2:48 p.m. EDT

Blue-chip stocks edged off their highs but remained sharply positive Monday after the U.S. government said it would take over mortgage giants Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote). Technology shares, however, were fluctuating around the baseline.

The Dow Jones Industrial Average was up 200 points to 11,421, and the S&P 500 was gaining 15 points at 1258. The Nasdaq was up 1.3 points to 2257.

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 blue-chip indices, shares of Fannie and Freddie were getting destroyed, down 89% and 85%, 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.