Yen slides as Freddie, Fannie bailout calms nerves

WELLINGTON, Sept 8 (Reuters) - The U.S dollar slid on the euro but climbed on a weaker yen on Monday after the U.S. government seized control of mortgage companies Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) to shore up the U.S. housing market and protect against more global financial turbulence.

The Japanese currency was the major loser as the move seemed to lessen one major risk to global financial markets and the U.S. economy.

"The news was seen as supportive for the U.S. financial sector and this triggered a widespread buying back of short yen cross positions," said Bank of New Zealand currency strategist Danica Hampton.

The yen had shot higher last week as growing risk aversion led investors to cut back leveraged carry trades funded in the Japanese currency.

Now some of that process was reversing, knocking the yen broadly lower while boosting the euro and commodity currencies like the Australian dollar.

The euro shot up around 2.8 percent to 156.88 yen <EURJPY=R>, from 152.52 late in New York on Friday. It also rose to $1.4397 <EUR=>, from $1.4236.

The U.S. dollar climbed to 108.96 yen <JPY=>, from 107.14 on Friday, while the Australian dollar jumped to 90.77 yen <AUDJPY=R>, from 87.05.

The ICE Futures U.S. dollar index, which tracks the value of the greenback against a basket of six currencies, was a shade softer at 78.402 .DXY, from 78.930.

On Friday, the dollar had ended higher against the euro, though it came off 11-month highs after data showed a jump in the unemployment rate as the U.S. economy lost jobs for the eight month in a row.

The takeover of the two mortgage giants, which own or guarantee half of the country's $12 trillion in outstanding home mortgage debt, followed growing concern about the mounting losses at both of them, undermining them as other sources of house lending have dried up. See [ID:nN07479172]

"Our economy and our markets will not recover until the bulk of this housing correction is behind us," U.S. Treasury Secretary Henry Paulson said at a news conference. "Fannie Mae and Freddie Mac are critical to turning the corner on housing."

The high yielding New Zealand and Australian currencies recouped some of their recent sharp losses as risk aversion calmed just a little.

The kiwi <NZD=> rose to $0.6814/18 from Friday's New York close of $0.6670 and the Aussie <AUD=> gained to $0.8309/14 from $0.8123.