WRAPUP 5-U.S. seizes Fannie, Freddie, aims to calm markets

* U.S. government takes over Fannie Mae, Freddie Mac

* Move is aggressive bid to help battered housing market

* Regulator to operate companies; CEOs replaced

* U.S. stock futures soar on move (Updates with financial market reaction, paragraphs 5-6; HKMA's Yam, paragraph 10)

By Glenn Somerville

WASHINGTON, Sept 7 (Reuters) - The U.S. government on Sunday seized control of mortgage finance companies Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz), launching what could be its biggest bailout ever in a bid to support the U.S. housing market and ward off more global financial market turbulence.

The action, prompted by worries over the companies' shrinking capital, was the latest in a series of emergency steps taken by U.S. officials to prop up the wobbly housing sector and quell what is now a year-long crisis in credit markets that has helped push many economies toward recession.

"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 in a statement read to reporters.

Fannie Mae and Freddie Mac, which own or guarantee almost half of the country's $12 trillion in outstanding home mortgage debt, were so large that "a failure of either of them would cause great turmoil in our financial markets here at home and around the globe," Paulson said.

U.S. stock index futures NDc1 SPc1 DJc1 surged on Sunday evening, pointing to a sharp move up when Wall Street opens on Monday and showing the action had shored up investor sentiment. U.S. bond futures TYc1, however, tumbled as the plan raised concerns about the additional debt the government might take on. The dollar rose against the yen <JPY=> but slid against the euro <EUR=>.

The government-sponsored companies, which are publicly traded but which also serve a government mission to support housing, were put in a conservatorship that allows their stock to keep trading but puts common shareholders last in line in any claims.

The normal powers of the companies' directors and officers will be held by the conservator -- their regulator, the Federal Housing Finance Agency -- until the businesses are restored to "safe and solvent" financial health.

U.S. President George W. Bush said the action was necessary because the troubles at Fannie Mae and Freddie Mac, which have $1.6 trillion in debt outstanding, posed "an unacceptable risk to the broader financial system and our economy."

Early reaction from overseas was favorable. Joseph Yam, head of the Hong Kong Monetary Authority, a buyer of Fannie and Freddie-issued debt, told Reuters the actions "should have a useful, tranquilizing effect on the very stressful market."

GOVERNMENT BECOMES SHAREHOLDER

As part of the plan, the Treasury is taking an equity stake in the companies, will purchase mortgage-backed securities they issue and will extend a credit line to them -- actions that together could top $200 billion.  Continued...