Fears that turbulence in the high-risk mortgage market would spread eased on Wednesday after two lenders managed to secure enough money to stay afloat.
Fremont General Corp announced it is selling $4 billion of subprime residential loans to an unidentified buyer, a move that drove its battered stock up as much as 19 percent to a session high at $10.45 on the New York Stock Exchange.
Meanwhile, hedge fund operator Citadel LP has taken a 4.5 percent stake in Accredited Home Lenders Holding Co, a San Diego-based subprime lender. Accredited's stock climbed more than 10 percent to a session high at $11.91 on Nasdaq.
"That consolidation effort makes it less of a contagion," said Mark Ficke, head of US government bond trading at BNP Paribas in New York. Still, troubled lenders were paying a steep price for their new-found cash.
Accredited will pay a hefty 13 percent annual interest to Farallon Capital Management, a San Francisco hedge fund that has offered the company a five-year loan for $200 million. Fremont itself acknowledged it was taking a $140 million pre-tax hit on the sale of its loans.
It was too early to say whether such fresh sources of funding would be enough to keep a lid on the housing debacle, which many analysts worry could have a ripple effect through the economy.
Investors are especially keen to hear the Federal Reserve's thinking on the matter, with the release of the central bank's policy statement due out in a few hours.
Pre-emptively, the bond market turned lower on the idea that limited fallout from the subprime crisis would translate into a resilient economy that did not require any additional monetary stimulus.
The latest data hardly pointed to economic acceleration, though, with US mortgage applications slipping even as interest rates hovered near recent lows.