Fannie, Freddie Rescue to Spark Rally

Wall Street looked set to rally on Monday after the Treasury's decision to take over ailing Fannie Mae and Freddie Mac, with investors reading the move as a sign that the housing market's troubles were over.

Asian stocks shot up, with Seoul gaining as much as 5 percent and the Nikkei closing 3.4 percent up, while European indexes were pulled higher by banks.

The DJ Stox European bank index soared, led by rallies of over 10 percent by UBS , Royal Bank of Scotland, Barclays and Credit Agricole.

The government on Sunday seized control of the mortgage finance companies, launching what could be its biggest federal bailout ever, because they were worried about losses threatening to undermine them at a time other sources of housing finance have largely run dry.

Pre-market trading in Fannie Mae and Freddie Mac stock was suspended and trading will resume at 9:30 am New York time. In Europe, Fannie Mae and Freddie Mac's shares were down more than 50 percent before they were also suspended.

The U.S. Treasury expects to purchase $5 billion of Fannie Mae and Freddie Mac mortgage-backed securities within the next month as part of its takeover of the mortgage finance giants, according to press reports.

Also in the financial sector, officials at Lehman Brothers are hoping to finalize plans to raise capitaland 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 has ousted Kerry Killinger as its chief executive, and will replace him with Alan Fishman, who is now chairman of mortgage broker Meridian Capital Group, the Wall Street Journal reported on its website on Sunday.

In merger and acquisition news, cigarette maker Altria Group has agreed to buy Skoal and Copenhagen smokeless tobacco makerUST for about $10.3 billion in cash.