Stocks rose in Europe and Asia, sending the MSCI World Index to its biggest gain since April, on speculation the U.S. government's takeover of Fannie Mae and Freddie Mac will shore up the mortgage market. U.S. index futures climbed, while Treasuries fell the most in two months.

UBS AG, the European bank hardest hit by subprime-related losses, and Mizuho Financial Group Inc., Japan's biggest lender by assets, surged more than 10 percent after Treasury Secretary Henry Paulson said the government will provide short-term funding to the two biggest U.S. mortgage-finance companies and purchase debt backed by home loans. Citigroup Inc. climbed 10 percent.

The takeover of Fannie Mae and Freddie Mac ``is the beginning of the end of the problem,'' Lucy MacDonald, the London-based chief investment officer of global equities at RCM Ltd., which has $100 billion under management, said in an interview on Bloomberg Television. ``We'll see a floor put under financial shares.''

The MSCI World added 1.7 percent to 1,291.13 at 1:46 p.m. in London as all 10 industry groups except for health-care companies rose. Europe's Dow Jones Stoxx 600 Index and the MSCI Asia Pacific Index each climbed the most since January, advancing 3.9 percent and 4.6 percent, respectively. Futures on the Standard & Poor's 500 Index rose 2.8 percent.

The London Stock Exchange said a computer fault caused the longest halt of trading in more than eight years.

U.S. government notes fell, pushing 10-year yields up by the most since July 11, as investors moved to higher-yielding assets and speculated the Treasury may boost debt sales.

Paulson's Plan

Fannie Mae fell 49 percent in Germany and Freddie Mac lost 50 percent after the Treasury's plan eliminated their dividends and left common stockholders last in line for any claims.

More than $17 trillion in global equity value has been wiped out since October as the biggest surge in mortgage defaults in at least three decades sparked more than $500 billion of writedowns and losses at banks from Citigroup to UBS to Mizuho. All 10 industries in the MSCI World retreated in 2008 as a drop in lending magnified the global economic slowdown.

Concern that failures by Fannie Mae and Freddie Mac, which make up almost half the U.S. home-loan market, would spark further losses at financial institutions around the world helped send the MSCI World to the lowest level in two years last week.

Paulson and Federal Housing Finance Agency Director James Lockhart yesterday placed Fannie Mae and Freddie Mac in a government-operated conservatorship. The Treasury may purchase up to $200 billion of stock in the firms to keep them solvent.

Banks Rally

``This is a big step to improving the value of assets and liquidity in the financial system,'' said Brian Barish, who helps oversee about $8 billion as president of Denver-based Cambiar Investors LLC. ``But I don't think an explosive rally would be justified. A lot of the problems are still out there and this isn't going to change that.''

UBS climbed 12 percent to 25.02 francs. Deutsche Bank AG, Germany's largest bank, advanced 8.4 percent to 61.44 euros. Mizuho rose 12 percent, while Macquarie Group Ltd., Australia's largest investment bank, rose 15 percent.

Banks and insurers accounted for the 10 biggest gains in the Dow Jones Stoxx 50 Index, a gauge of the largest European companies.

``There's only one story that means anything as the new trading week gets under way and that's the nationalization of Fannie Mae and Freddie Mac,'' said Matt Buckland, a trader at CMC Markets in London. The takeover ``should take a lot of uncertainty out of the market in one quick move.''

LSE Trading Halt

Citigroup, the biggest U.S. bank by assets, climbed 10 percent to $20.97. JPMorgan Chase & Co., the third-largest, increased 2.6 percent to $40.62 in Germany.

The yield on the benchmark 10-year note rose as much as 15 basis points to 3.85 percent when the New York Times first reported the government was planning to take over the two largest buyers of home loans. It was recently at 3.80 percent, according to bond broker BGCantor Market Data.

London Stock Exchange Group Plc, Europe's oldest independent exchange, said a computer fault caused the longest halt of trading since April 2000, when a computer problem shut the exchange for eight hours.

``We are currently preparing to re-enable connectivity,'' the London-based exchange said on its Web site today. No orders can be entered and no trade executions will occur, the LSE said. The exchange said it will resume trading in a ``controlled way,'' without estimating how long that will take. The fault has left some traders without prices for more than two hours.

Total SA, Europe's third-biggest oil company, gained 3 percent to 45.65 euros. Eni SpA, the region's fourth-largest, advanced 2.4 percent to 20.73 euros.

Commodities Advance

Oil rebounded from a five-month low as Hurricane Ike swept across Cuba, delaying resumption of crude production in the Gulf of Mexico. Crude for October delivery rose 1.9 percent to $108.19 a barrel in New York.

Raw-materials producers in the Stoxx 600 climbed 5.1 percent as a group after copper jumped 1.5 percent in New York. Gold, tin and zinc also rose.

Boliden AB, Europe's second-largest zinc producer, gained 6.1 percent to 38.1 Swedish kronor.

Air France-KLM Group, Europe's biggest airline, said passenger traffic rose 2.8 percent last month, led by travel to the Americas. The shares added 2.9 percent to 17.16 euros.

Key Words: Business

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