There are fears for the Australian stock market today, after it fell to its lowest closing level in almost two years yesterday, after US stocks slipped on lingering concerns about the health of mortgage finance firms.

Also yesterday the National Australia Bank followed its big bank rivals by raising mortgage lending rates independently of the Reserve Bank.

VIDEO: US moves to prop lending firms

The NAB is raising its standard variable home mortgage rate by 15 basis points to 9.61 per cent blaming rises in wholesale funding costs.

St George started the trend more than a week ago the Commonwealth, ANZ and BankWest raised their rates last week and AMP Bank and SunCorp follow suit tomorrow.

Westpac's the only big bank to resist the trend.

Fannie, Freddie shares sputter after US offers lifeline

Shares in Fannie Mae and Freddie Mac struggled after a near-meltdown last week, as investors mulled a weekend plan offering a government lifeline for the US mortgage finance giants.

Freddie Mac's shares shot up as much as 26 percent, then fell 9.4 percent to 7.01 dollars at 1820 GMT.

Fannie Mae erased its 31 percent opening gain, then dropped 1.5 percent to 10.10 dollars.

The shares had plummeted last week in the face of widening fears about the solvency of the mortgage finance titans.

A bold plan announced Sunday gives the struggling giants that underpin trillions of dollars in home loans access to central bank lending facilities and a temporary increase, pending congressional approval, of their lines of credit from Treasury.

Fed may step in

A Fed statement said its Board of Governors had granted the Federal Reserve Bank of New York authority to lend to Fannie Mae and Freddie Mac "should such lending prove necessary."

The loans would be at the primary credit rate offered to investment firms and would be backed by US government and federal agency securities.

Meanwhile Freddie Mac was able to sell two billion dollars in three-monthnotes and one billion in six month notes. Freddie said the number of bids and yield indicated "solid demand."

Under a plan announced Sunday, Treasury Secretary Henry Paulson proposed temporary authority for Treasury to purchase equity in either of the two firms "if needed."

Brian Bethune, economist at Global Insight, said the rescue plan needs more concrete measures quickly to stave off a catastrophe for the mortgage giants that could spill over to the wider economy.

"The Treasury will need to specify very soon, within a matter of two or three days, how much capital that it intends to infuse into the two entities," he said.

"This capital infusion needs to be very significant -- perhaps as much as 20 billion dollars, or higher, for both entities -- in order to defuse the speculative selling ... and reverse the negative psychology quickly and effectively."

Analysts point out that the two firms are needed to help ease the crunch affecting the home loan market.

"The key to gauging the real economy impact is whether these two organizations can continue to provide their services to the mortgage market and ease the continued creation of new mortgages," said Merrill Lynch economist Drew Matus.

The moves on Freddie and Fannie come four months after the Fed acted to defuse a crisis involving Wall Street investment giant Bear Stearns, which resulted in its sale to JPMorgan Chase.

Princeton economist Paul Krugman said Fannie and Freddie "probably will need a government rescue. But since it's already clear that that rescue will take place, their problems won't take down the economy.