The Treasury is finalizing plans to backstop Fannie Mae and Freddie Mac, the mortgage financing giants that have been struggling with billions of dollars of losses from soured loans, the Wall Street Journal reported.

Fannie Mae and Freddie Mac soared Monday on optimism a government bailout may not be inevitable.  But banks with big holdings in the stocks still tanked.

Heightened expectations of a government bailout of U.S. home-funding giants Fannie Mae and Freddie Mac continued to roil their stocks as investors feared such government action would wipe out shareholders.

Fannie Mae posted a much larger-than-expected second-quarter loss and slashed its dividend more than 85 percent to preserve capital as home loan defaults accelerated in the bleakest U.S. housing market since the Great Depression.

Standard & Poor's may cut ratings on Fannie Mae and Freddie Mac, citing concerns that government plans to shore up the mortgage finance companies may subordinate the debt.

The U.S. Senate is due to vote finally Saturday to approve a major housing market rescue bill, including federal financial assistance for Fannie Mae and Freddie Mac.

Treasury Secretary Henry Paulson, calling it critical that the markets have confidence in Fannie Mae and Freddie Mac, said he expects  congressional approval for a proposed rescue plan this week.

Buyers flocked to Freddie Mac's $3 billion debt sale just hours after the U.S. government pledged support for the nation's top mortgage finance agencies, but the steps failed to stem growing alarm on Wall Street.

Treasury Secretary Henry Paulson said the government's primary focus is to make sure  Fannie Mae and Freddie Mac remain able carry out their mission.

Shares of Fannie Mae and Freddie Mac, the largest providers of funding for U.S. home mortgages, plunged to their lowest levels since 1992 on concern the companies need to raise more capital amid larger-than-expected losses.