Mortgage REITs invest in mortgage-backed securities, backed by loans secured by real estate, earning their income from the interest paid on the mortgage-backeds and fees generated them. In recent months, falling interest rates created a highly illiquid market for REITs as spreads between mortgage-backeds and treasuries widened, making it costly for issuers to sell mortgage-backeds.

The most recent rate cut could finally stabilise spread while leaving rates low enough for repayments on mortgages, analysts said.

"With this third rate cut improving liquidity and cutting funding costs, it is possible fundamentals will show a turnaround, "said W Coleman Bitting, an analyst at Stifel Nicolaus.

Investors had been leaving the sector in a flight to quality toward securities with lowerrisk. As interest rates fell, mortgage holders refinanced and prepaid loans earlier, which altered the value of the securities that were backed by those loans.

The industry's recent malaise was reflected by the October bankruptcy filing by Crimmi Mae Inc, which had been considered one of the more stable businesses in the mortgage REIT industry.

Early Wednesday, Crimmi Mae posted a third-quarter loss of $8.65 million, or 18 cents per share, versus earnings of $9.99 million, or 26 cents, in the year-ago period. Analysts had expected it to earn 40 cents per share.

And IndyMac Mortgage Holding Inc said it expected a loss in the fourth quarter, when analysts had expected it to earn 10 cents per share. Its stock closed Wednesday at 60 cents, down 38 cents on the day.

IndyMac also said it would cut 280 jobs, or 19 per cent of its work force, and sell various mortgage-related assets to create liquidity. The REIT said recent market disruptions had caused some of its repurchase lenders to restrict the amountand terms of certain borrowings and impose margin calls on assets securing its borrowings, which reduced its liquidity.

Indeed, liquidity is the name of the game for mortgage REITS to get back on track, said Tom Dryer, an analyst at Friedman, Billings, Ramsey.

"I think the Fed cut is definitely a positive but it is more important to see further spread stabilisation and tightening over the next several months, which is the key to recovery for the sector. We see some stabilisation and modest tightening, but there is still a lot of supply," Dryer said.

"Companies that are not well-leveraged and that have highly illiquid securities will continue to have problems," said Jim Fowler, an analyst at Nationsbanc Montgomery Securities. "Companies like Clarion Commercial Holdings Inc and Crimmi Mae do not have the ability to access debt markets to grow so they are of nominal value to the dealer community."