Aug. 27 (Bloomberg) -- Fannie Mae and Freddie Mac rose in New York stock trading after successful debt sales and a Merrill Lynch & Co. analyst report helped to suppress speculation that the companies have an imminent need for a government bailout.

``It is still premature to consider a Treasury sponsored recapitalization, in our view, as capital depletion would not likely occur for several quarters on our estimates,'' Merrill analysts Kenneth Bruce and Cyrus Lowe in San Francisco wrote in a report today. ``This suggests that the shares are overly- discounting a possible catastrophic event.''

Fannie sold $1 billion each of three-month and six-month notes today and Freddie raised $1 billion, offering buyers extra yields relative to benchmark rates that while wider than before, remained lower than a year ago. Investors have been watching the debt sales for any ``tell-tale'' signs that Washington-based Fannie and McLean, Virginia-based Freddie can't fund themselves, UBS AG analysts in New York including William O'Donnell wrote in a report.

Fannie added 86 cents, or 15 percent, to $6.48 in New York Stock Exchange composite trading, the biggest gain in six weeks. Freddie climbed 78 cents, or 20 percent, to $4.75. Both companies had lost more than 85 percent of their market value this year because of losses and the prospects for a government bailout that would likely wipe out shareholders.

It's not clear that Fannie and Freddie ``need a capital injection,'' Bruce and Lowe said in separate reports. Still ``policy makers may be forced by the controversy playing out in the market to consider various options to stabilize'' the firms.

Clarity

The analysts cut their price estimate on Fannie shares to $5 from $9, and on Freddie's to $3 a share from $5.75, because the lack of clarity over the government's plan to help the companies will continue to weigh on the shares.

Also today, Fannie Chief Executive Officer Daniel Mudd replaced three top managers. Finance chief Stephen Swad, Chief Business Officer Robert Levin and head of risk management Enrico Dallavecchia will all leave, according to a statement today from the company. Swad will be replaced by David Hisey.

Congress created Fannie and Freddie to expand homeownership and provide market stability. They make money by buying mortgages from banks, funding their purchases with low-cost debt, and by guaranteeing home-loan securities. The companies have about $200 billion of debt maturing through Sept. 30.

Just Enough

The two mortgage-finance companies ``will likely be plagued by poor visibility into the future of credit losses and the uncertainty surrounding the possible public policy actions that could jeopardize shareholders,'' the analysts wrote. ``Risks of further contraction in the mortgage market are as unpalatable as a high-profile bail-out.''

Both stocks are rated ``underperform'' at Merrill, the reports said.

Fannie sold $1 billion of three-month notes at a yield of 2.58 percent, the company said. That's about 89 basis points more than U.S. Treasuries and 23 basis points less than the three- month London interbank offered rate, compared with 76 basis points and 31 basis points in a sale last week.

Fannie also sold $1 billion of six-month debt today at a yield of 2.87 percent, about 93 basis points above Treasury bills and 28 basis points below six-month Libor, compared with 88 basis points and 31 basis points last week. A basis point is 0.01 percentage point. Three-month Libor is currently set at 2.81 percent, while six-month Libor is at 3.12 percent.

Freddie raised $1 billion of one-month debt at a yield of 2.28 percent, or 66 basis points more than Treasuries and 18 basis points less than one-month Libor, separate data shows. The spread was the highest versus Libor in a monthly auction since July 2007. Against Treasuries, the spread was lower than in June.

Today's spreads were wide enough to attract demand, yet narrow enough to dim speculation that the government-sponsored enterprises will be forced to turn to Treasury Secretary Henry Paulson for support.

To contact the reporters on this story: Bryan Keogh in New York at bkeogh4@bloomberg.netAlexis Xydias in London at axydias@bloomberg.net.

Last Updated: August 27, 2008 17:58 EDT