New York: Stocks sold off on Wall Street, the dollar tumbled, and US government debt prices slumped on Thursday on fears the growing US budget deficit could lead to a credit rating downgrade after Britain got a wake-up call.
The simultaneous decline in stocks, bonds and the US dollar marked a departure from a recent pattern in which investors have taken refuge in bonds and the dollar when stocks have fallen and vice versa.
Some investors read it as a sign of growing worry over the amount of debt the US government is issuing to counter the recession.
US Treasury debt prices fell on Thursday after the government said it would sell $101 billion of new notes next week, adding to worries whether investors can digest all the debt the government is issuing to pay for its financial bailouts.
The US dollar plunged to its lowest level this year against major currencies and gold rose above $950 an ounce to nearly a two-month high as investors flocked to bullion as a safe haven.
The euro gained 1.0% to trade at $1.3899, after hitting $1.3923, its highest level since early January, while the dollar briefly dipped below ¥94, a two-month low, before clawing its way back to ¥94.25, still down 0.6%.
“People are asking, if the UK is having problems like this then maybe U.S. sovereign debt is also not as solid,” said David Dietze, chief investment strategist at Point View Financial Services in Summit, New Jersey.
Bill Gross, the co-chief investment officer of fixed-income fund Pacific Investment Management Co, said he believed the United States would be eventually lose its AAA rating, but not for three to four years.
“But the market will recognize the problems before the rating services -- just like it did today,” Gross said in an interview with Reuters.
A spokesman for credit rating agency, Standard and Poors, declined to comment on the US outlook and noted the agency reaffirmed an AAA rating on the United States in January.
Another rating agency, Moody’s, said after the US stock market closed that it was comfortable with its AAA rating on US debt, but the rating faced long-term pressures and was not guaranteed forever.
Earlier on Thursday, US Treasury Secretary Timothy Geithner made a reference to US debt when he addressed a congressional panel, saying the United States would need to ratchet down its budget deficit swiftly once growth was restored.
“We must get our fiscal house in order or risk having government borrowing crowd out productive private investment,” he said.
Geithner also said the US administration has to make sure its policies help retain confidence in the dollar’s value.
Earlier on Thursday Standard and Poors changed its outlook on Britains credit rating to negative, putting at risk the UK’s AAA credit rating, citing rising levels of debt.
The Dow Jones industrial average closed down 129.91 points, or 1.54%, at 8,292.13. The Standard & Poor’s 500 Index was down 15.14 points, or 1.68% at 888.33. The Nasdaq Composite Index was down 32.59 points, or 1.89%, at 1,695.25.
Shares of big manufacturers dropped, and investors also pummeled technology shares.
European shares fell, weighed by banks and commodities, as S&P’s potential UK credit cut added to worries sparked by news on Wednesday that Federal Reserve policy-makers had cut their US growth forecasts over the next three years.
Oil was dragged down from six-month highs as the lingering signs of US job market weakness stoked concerns about the economy and fuel demand.