NEW YORK: A threat by Standard & Poor's to cut its AAA rating of U.S. government debt and renewed worries about Europe's debt crisis spurred a sell-off in major world stock markets on Monday, April 18.
The weakness started in European markets on fears that Greece will have to restructure its debt possibly as early as the summer. That put the euro on track for its biggest one-day decline in five months against the U.S. dollar.
The sell-off picked up pace later when rating agency Standard & Poor's revised its outlook on the United States to negative from stable, citing the risk that policymakers would fail to agree on proposals to cut its large budget deficit over the next two years.
Longer-dated U.S. government bond prices initially fell but recovered in afternoon trade. While the U.S. debt outlook is certainly problematic, it is not as damaging, at least immediately, as the euro zone's sovereign woes have been, analysts said.
"This morning's S&P story added to the negative tone throughout global markets and that has exacerbated the move lower," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "It does very much highlight the difficult situation in the U.S."
While the S&P maintained the country's top AAA credit rating, the move signals there's at least a one-in-three chance that it could cut the long-term rating within two years.
MSCI's all-country world stock index started what is in many places a holiday-shortened week by losing 1.5 percent.
Wall Street stocks fell more than 1 percent as the S&P's revision added to worries about the global economy after China moved to curb liquidity to counter rising inflation pressures.
Equities ended off their lows in a heavily traded session, though the decline still amounted to the largest in a month.
Some analysts said the sell-off in equities was overdone, citing the recovery in the U.S. bond market and fresh worries about the euro zone.
"The behavior of the bond market suggests that we could get a rebound in stocks, at least one related to the S&P news," said David Joy, chief market strategist at Columbia Management in Boston, which oversees $347 billion.
The Dow Jones industrial average .DJI dropped 140.24 points, or 1.14 percent, to end at 12,201.59. The Standard & Poor's 500 Index .SPX fell 14.54 points, or 1.10 percent, to finish at 1,305.14. The Nasdaq Composite Index .IXIC slid 29.27 points, or 1.06 percent, to close at 2,735.38.
European shares sunk to a three-week closing low, with the FTSEurofirst 300 .FTEU3 off 1.7 percent.
The euro hit a two-week low against the dollar of $1.4155. It recovered some of the losses to be quoted late afternoon at $1.4232, still down 1.4 percent and on track for its biggest one-day drop since late November. The euro also lost 1.9 percent to 117.68 yen.
The euro's decline came after German government sources said they did not believe Greece, which sealed a 110 billion euro ($157.7 billion) bailout from the EU and IMF last year, would make it through the summer without restructuring. The Greek government has denied repeatedly that it plans to restructure. - Reuters
The weakness started in European markets on fears that Greece will have to restructure its debt possibly as early as the summer. That put the euro on track for its biggest one-day decline in five months against the U.S. dollar.
The sell-off picked up pace later when rating agency Standard & Poor's revised its outlook on the United States to negative from stable, citing the risk that policymakers would fail to agree on proposals to cut its large budget deficit over the next two years.
Longer-dated U.S. government bond prices initially fell but recovered in afternoon trade. While the U.S. debt outlook is certainly problematic, it is not as damaging, at least immediately, as the euro zone's sovereign woes have been, analysts said.
"This morning's S&P story added to the negative tone throughout global markets and that has exacerbated the move lower," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "It does very much highlight the difficult situation in the U.S."
While the S&P maintained the country's top AAA credit rating, the move signals there's at least a one-in-three chance that it could cut the long-term rating within two years.
MSCI's all-country world stock index started what is in many places a holiday-shortened week by losing 1.5 percent.
Wall Street stocks fell more than 1 percent as the S&P's revision added to worries about the global economy after China moved to curb liquidity to counter rising inflation pressures.
Equities ended off their lows in a heavily traded session, though the decline still amounted to the largest in a month.
Some analysts said the sell-off in equities was overdone, citing the recovery in the U.S. bond market and fresh worries about the euro zone.
"The behavior of the bond market suggests that we could get a rebound in stocks, at least one related to the S&P news," said David Joy, chief market strategist at Columbia Management in Boston, which oversees $347 billion.
The Dow Jones industrial average .DJI dropped 140.24 points, or 1.14 percent, to end at 12,201.59. The Standard & Poor's 500 Index .SPX fell 14.54 points, or 1.10 percent, to finish at 1,305.14. The Nasdaq Composite Index .IXIC slid 29.27 points, or 1.06 percent, to close at 2,735.38.
European shares sunk to a three-week closing low, with the FTSEurofirst 300 .FTEU3 off 1.7 percent.
The euro hit a two-week low against the dollar of $1.4155. It recovered some of the losses to be quoted late afternoon at $1.4232, still down 1.4 percent and on track for its biggest one-day drop since late November. The euro also lost 1.9 percent to 117.68 yen.
The euro's decline came after German government sources said they did not believe Greece, which sealed a 110 billion euro ($157.7 billion) bailout from the EU and IMF last year, would make it through the summer without restructuring. The Greek government has denied repeatedly that it plans to restructure. - Reuters
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