NAT: re-route localhost to otherhost

On machine host1 (10.1.1.1) I want to re-route localhost port 25 traffic to host2 (10.1.1.2). My only nat table entries are:

iptables -t nat -A OUTPUT -p tcp --dport 25 \
-j DNAT --to-destination 10.1.1.2

iptables -t nat -A POSTROUTING -p tcp --dport 25 \
-j SNAT --to-source 10.1.1.1

Then "telnet host1" connects to host2 as expected (as does "telnet host3" etc.), but "telnet localhost" hangs. Log statements inserted before each statement show expected results (addresses, interfaces, etc.), except that in the localhost case the POSTROUTING log statement is never executed; I assume SNAT is not executed either.

The reverse translation works, i.e. changing both addresses to 127.0.0.1 results in "telnet host2" connecting to localhost.

Any explanations/fixes/suggestions? I'm using kernel 2.6.26 and iptables 1.4.2 (Debian lenny).

Thanks,

Bill Brelsford