World stocks mixed on US mortgage plan

European markets rose in early afternoon trading in the region on sentiment that government backing was positive. Most Asian markets opened higher but then shed their gains. Major indexes in China and the Philippines ended higher.

Britain's FTSE 100 rose 1.8 percent to 5,357.30, Germany's DAX added 1.3 percent to 6,235.78 and France's CAC-40 gained 1.9 percent to 4,179.36.

Spanish banking company Banco Santander boosted financial stocks when it said it agreed to take over the British mortgage lender Alliance & Leicester PLC in a deal valued at 1.26 billion pounds ($2.5 billion).

"Confirmation that the U.S. authorities are standing behind Fannie Mae and Freddie Mac have given a big boost to confidence and that's been further cemented by the confirmed takeover of Alliance & Leicester," said Keith Bowman, an analyst at Hargreaves Lansdown Stockbrokers.

In Asia, Japan's Nikkei 225 index lost 0.2 percent to close at 13,010.16. Hong Kong's blue-chip Hang Seng Index dropped 0.8 percent to 22,014.46.

The declines came after the U.S. Federal Reserve said Sunday it was granting its New York branch authority to lend to the two mortgage financiers "should such lending prove necessary." The measure allows Fannie Mae and Freddie Mac to borrow from the central bank at the same rate given to commercial banks and big Wall Street firms should they need short-term funding in the face of a slumping U.S. housing sector and tightening credit market.

The Fed said the step would help both firms "promote the availability of home mortgage credit during a period of stress in financial markets."

The measure comforted some investors after Friday's failure of IndyMac Bancorp Inc., one of the largest U.S. bank meltdowns in decades, analysts said. But it also left many speculating on the scope of credit and mortgage troubles in the world's largest economy, a vital consumer of Asian-made goods.

"The markets generally view it as positive, but on the other hand, we don't know what kind of precedent it's going to set," said D. Gorton, a Hong Kong-based research analyst at Louis Capital Markets. "You wonder how bad it's going to get, how much more is out there."