Stocks Rally but Fannie, Freddie Plunge

Stocks rallied Monday as investors breathed a triple-digit sigh of relief after the bailout of Fannie Mae and Freddie Mac.

The Dow Jones Industrial Average shot up like a rocket at the opening bell, surging more than 300 points before pulling back to a more modest mid-200 gain. Nearly all of the Dow's components were higher. (Track the Dow 30 stocks.)

The S&P 500 and Nasdaq were also higher but the tech-heavy Nasdaq was the laggard of the three amid worries about the global slowdown on tech-product demand.

The U.S. government on Sunday seized control of Fannie Mae and Freddie Mac in what could be its biggest bailout ever. The CEOs of both companies were ousted and the Treasury is expected to put up as much as $200 billion for the rescue effort.

Financials leaped out in front, with sharp gains in companies that own a lot of Fannie and Freddie debt, including AIG , Citigroup and Bank of America .

Homebuilders also rallied on the news as mortgage rates dropped, spurring hopes for an increase of buyers. Lennar , Pulte Homes and DR Horton were all up more than 10 percent.

Shares of Fannie Mae and Freddie Mac , plunged more than 60 percent, while their debt soared, as investors bet that the bailout would wipe out the companies' stocks but fully guarantee their bonds. The stocks were suspended in pre-market and overseas trading.

Amid all the hoopla in the market today, there was an underlying murmur of skepticism that the bailout wouldn't fix the larger problems for the housing and credit markets.

"This euphoria might fade, because Fannie and Freddie are not the problem," said Christopher Low, chief economist at FTN Financial. "Their woes are a symptom of a worldwide contraction in credit that may not be cured by the decision."

Tony Crescenzi of Miller Tabak adds that the bailout was already priced into the market. Where you should be looking, Crescenzi writes, is at the dollar. This bailout will help keep the dollar's rally going, he says.

Officials at Lehman Brothers are hoping to finalize plans to raise capital and sell off bad debts sometime this week, though the exact nature of the effort is still in flux, people close to the company tell CNBC.

Washington Mutual shares jumped after the beleaguered bank ousted CEO Kerry Killinger. He will be succeeded by Alan Fishman, who is now chairman of mortgage broker Meridian Capital Group, the Wall Street Journal reported.

Boeing shares waffled as workers walked the picket line for a third straight day. Analysts estimate that each day of the strike will cost the aerospace giant $100 million in sales and one cent a share in profit.

In merger and acquisition news, cigarette maker Altria Group has agreed to buy UST