Two US home financing heavyweights won government approval yesterday to pump $200 billion more into troubled US mortgage markets, the latest step to stabilise credit markets and avert a deep recession.
Despite intensive efforts to battle rising home foreclosures and calm shaky markets by the Treasury Department and the Fed, which has pledged $400 billion to free up credit, Democratic lawmakers continue to press for bolder action.
"All hands are on deck to try and prevent this US situation from becoming a dire crisis," said David Watt, a currency strategist with RBC Capital Markets in Toronto. "They're doing everything they can, making policy on the fly."
Still, markets were not calmed by the latest move by the regulator that oversees Fannie Mae and Freddie Mac to immediately loosen their capital requirements and give them a bigger role in buying up mortgages.
The blue chip Dow Jones industrial average .DJI lost almost three-quarters of the 420-point gain notched a day earlier, closing down 293 points, in part on worry brokerage Merrill Lynch & Co may need to write down more bad assets.
More relief, however, is in the works. A separate regulator appeared near a decision to allow the Federal Home Loan Bank System to double some mortgage holdings to around $300 billion - which would be another big shot of market liquidity.
Sources familiar with the proposal said a vote on the measure was likely this week.