Wednesday, August 10, 2011

World shares retreat on French jitters

NEW YORK/LONDON: Global shares turned lower and the euro dropped on Wednesday as the selling of risky assets resumed on speculation that France's AAA rating may be at risk.

European stocks retreated 1.5 percent, led lower by French banks. Credit ratings firms Moody's Investors Service and Fitch reiterated their AAA rating for the sovereign, echoing a comment from Standard & Poor's the day before.

"There is talk of a possible downgrade for France. The market is quite jittery and France seems to be the next one on everyone's radar, hence there are selling in French banks," a London-based trader said.

The turnaround followed a morning of gains in Europe and Asia that were prompted by the U.S. Federal Reserve's dovish promise on Tuesday that it would keep interest rates low for another two years. U.S. stocks opened sharply lower, reversing some of Tuesday's bounce-back rally.

The Fed's unprecedented commitment was double-edged. It sent the message to markets that the Fed is willing to keep things afloat, but it also acknowledges how much the U.S. economy has weakened.

"At this point of time, investors' heads are spinning," said Oliver Pursche, president at Gary Goldberg Financial Services in Suffern, New York.

"We anticipate further volatility," he said. "I even think we are going to retest the lows that were set on Monday."

The Dow Jones industrial average dropped 248.58 points, or 2.21 percent, to 10,991.19. The Standard & Poor's 500 Index fell 23.88 points, or 2.04 percent, to 1,148.65. The Nasdaq Composite Index lost 57.21 points, or 2.30 percent, to 2,425.31.

The euro tumbled against the U.S. dollar on increasing concerns that Standard & Poor's could initiate ratings action on sovereign debt in Europe after downgrading U.S. debt last week. The euro fell to a session low of $1.4243 and last traded at $1.4246, down 0.9 percent on the day.

Switzerland's central bank, meanwhile, said it was expanding measures to fight against the Swiss franc's strength. Investors have been pouring into the currency as a safe haven during recent market and economic weakness.

U.S. Treasury prices rose as traders lowered their expectations for growth based on the Fed's statement. The benchmark 10-year Treasury note was up 22/32 in price after briefly posting a one-point gain, its yield falling to 2.16 percent from 2.24 percent late on Tuesday.

The MSCI all-country world index which has fallen as much as 20 percent from a May high, was down 1.2 percent after earlier gains. ' Reuters

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