Fannie, Freddie shares jump in broad financial rally

By Kristina Cooke

NEW YORK (Reuters) - Fannie Mae and Freddie Mac shares had their best day in more than two decades on Wednesday after Wells Fargo's (WFC.N: Quote, Profile, Research) strong earnings spread relief across Wall Street, even as a plan to prop up the two mortgage finance titans met resistance from congressional Republicans.

The two pillars of the U.S. housing market also benefited from remarks by Federal Reserve Chairman Ben Bernanke that they are "in no danger of failing."

Nevertheless, U.S. Treasury Secretary Henry Paulson was headed for Capitol Hill on Wednesday afternoon as the White House ramped up its push to win over Republican party lawmakers who questioned the scale of the rescue plan for Fannie and Freddie and its potential cost to taxpayers.

Earlier in the day the White House said that Congress should be able to approve legislation aimed at providing back up funding for Fannie and Freddie by next week. Winning fast approval is seen as key to preventing an already-weak housing market from deteriorating further and tipping the U.S. economy into recession.

The U.S. Treasury and Federal Reserve's plan to support the two government-sponsored enterprises includes a pledge to extend more credit or buy equity stakes in Fannie Mae and Freddie Mac if needed.

On Wall Street, meanwhile, shares of both Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) jumped by about 30 percent each on Wednesday. It was Freddie's biggest one-day percentage gain since 1988, and Fannie's best day since at least 1981.

The rally had less to do with the rescue plan than with investor relief about quarterly earnings at Wells Fargo. The nation's fifth-largest bank and second-largest mortgage lender posted a profit that topped analysts' expectations and Wells Fargo also raised its dividend.

Other bank stocks also surged as Wells Fargo's results eased concerns about the impact of the credit crisis on the financial sector. The Financial Select Sector SPDR fund XLF, which tracks the performance of large capitalization financial stocks, was up 12.2 percent.