Washington  - US stocks soared early Monday as investors welcomed the US government's takeover of beleaguered mortgage giants Fannie Mae and Freddie Mac.

The Dow Jones Industrial Average and broader Standard & Poor's 500 index both climbed more than 2 per cent in morning trading in New York, before retreating slightly from their early highs. Asian and European stocks also made extensive gains Monday.

Financial and homebuilding shares led the US surge after the Treasury on Sunday said it would place Fannie and Freddie in a conservatorship, replacing their chief executives and eliminating share dividends.

The bailout means the government now formally guarantees about half of the US mortgage market, or 6 trillion dollars-worth of home loans owned or operated by the two government-chartered lenders, which have struggled to raise enough capital to weather the subprime mortgage crisis.

Investment banks and lenders have suffered more than 500 billion dollars in writedowns of mortgage-related assets over the past year, as plunging housing prices prompted a record number of homeowners to default on their mortgages.

The financial fallout of the housing crisis has limited consumers' access to new home loans and other types of loans - a key reason for the wider economic slowdown in the United States.

US President George W Bush Sunday said Fannie and Freddie could not "continue to operate safely and soundly" without government intervention, "posing an unacceptable risk to the broader financial system and our economy." (dpa)