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US stocks, euro slip after euro zone downgrades

US stocks, euro slip after euro zone downgrades
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First Published: Sat, Oct 08 2011. 05 45 PM IST

Updated: Sat, Oct 08 2011. 05 45 PM IST
New York: US stocks slipped while global stocks rose late on Friday after downgrades of Spain’s and Italy’s credit ratings overshadowed better-than-expected US employment data.
The credit rating downgrades came ahead of a European summit on Sunday aimed at shoring up the region’s financial sector.
Earlier on Friday, US and European stocks had gained after better-than-expected US employment data eased fears of another recession.
“The employment data was viewed as being relatively good but this issue in Europe keeps rearing its head. We just can’t seem to escape Europe’s debt crisis,” said Thomas Villalta, portfolio manager for Jones Villalta Asset Management in Austin, Texas.
The Dow Jones industrial average slipped 5.75 points, or 0.05%, at 11,117.58. The Standard & Poor’s 500 Index was down 8.00 points, or 0.69%, at 1,156.97. The Nasdaq Composite Index was down 21.14 points, or 0.84%, at 2,485.68.
US stocks are still set to end the week higher though, with the S&P 500 on track for a gain of about 2.0%.
European shares rose to a five-week closing high, with the pan-European FTSEurofirst 300 index of top shares up 0.7% at 946.98, up 2.6% for the week after European leaders committed to recapitalizing the region’s banks earlier this week.
World stocks measured by the MSCI All-Country World index were up 0.2% at 285.04.
Euro Slips, Bonds Down
The euro fell against the US dollar, snapping a four-day advance after ratings agency Fitch cut Spain’s credit rating just minutes after downgrading Italy, saying the euro zone debt crisis has implications for the entire region.
Fitch cut Spain to AA-minus from AA-plus and kept a negative outlook on the new rating in a sign more downgrades are possible in the next couple of years.
Earlier it cut Italy’s sovereign credit rating one notch to A+ from AA-, saying the move reflected the worsening of the euro zone’s debt crisis and an erosion of market confidence, caused by the government’s initially hesitant response to the rise in its bond yields.
The euro had been up across the board before the downgrades after data showed US employment grew more than expected in September, raising optimism about economic recovery.
But those gains quickly reversed as investors’ focus swung back to euro zone sovereign debt problems and the stresses in the European banking sector.
“This brings the sovereign debt crisis back into focus and raises the risk for contagion, given Spain has been downgraded alongside Italy,” said David Song, currency analyst at DailyFX in New York.
The euro was last down 0.3% at $1.3403 on electronic trading platform EBS, still off a nine-month low of $1.3145 touched on Tuesday but well off the session peak of $1.3525.
US Treasuries prices were lower after the strong US payrolls data reduced fears of a recession but were not enough to dispel the view that Europe’s debt turmoil would exacerbate already sluggish growth.
Benchmark yields were on track for their biggest weekly rise in three months, but were not far above historic lows due to the stampede into US government debt last quarter after the downgraded US economic outlook and worries about Europe.
Prices on 30-year Treasury bonds were down a point, yielding 2.99%.
Earlier this week, the 30-year yield touched 2.69%, its lowest level since January 2009.
Benchmark 10-year notes fell 14/32 point to yield 2.04%. The 10-year yield is poised for its biggest weekly rise since early July, when it jumped 31 basis points.
Oil prices were also lower after the downgrades of Spain and Italy revived concerns about European economic growth.
Brent crude oil for November fell 50 cents to $105.23 a barrel. US November crude fell 62 cents to $81.97 a barrel.
Gold prices fell more than 1.0% as investors quickly sold to raise cash to cover margin calls in the lower equity markets after the downgrades of Spain and Italy.
Gold fell 1.1% to $1,631.69 an ounce.
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First Published: Sat, Oct 08 2011. 05 45 PM IST
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