Awwal 14, 1432 / April 18, 2011, SPA -- Renewed worries about Europe's debt crisis and a downgrade of the U.S. credit outlook by Standard & Poor's spurred a sell-off in major world stock markets on Monday, according to Reuters. The euro was on track for its biggest one-day decline in five months against the U.S. dollar on fears that Greece will have to restructure its debt possibly as early as the summer. Rating agency Standard & Poor's revised its outlook on the United States to negative from stable, citing a "material risk" that policymakers may not reach agreement on proposals to trim its large budget deficit. While the S&P maintained the country's top AAA credit rating, it said the move signals there's at least a one-in-three chance that it could cut the long-term rating within two years. "On a day when sovereign debt troubles have returned to haunt the euro, S&P's announcement added salt to the wound," said Kathy Lien, director of research at GFT in New York. "Investors were risk averse going into the New York open and will now remain cautious or nervous throughout the North American trading session." MSCI's all-country world stock index started what is in many places a holiday-shortened week by losing 1.7 percent. Wall Street stocks tumbled in heavy volume as the S&P's move added to worries about the global economy after China moved to curb liquidity. At one stage, the S&P 500 fell below 1,300 for the first time since March 24. The Dow Jones industrial average dropped 192.73 points, or 1.56 percent, to 12,149.67. The Standard & Poor's 500 Index dropped 19.33 points, or 1.46 percent, to 1,300.35. The Nasdaq Composite Index fell 44.26 points, or 1.60 percent, to 2,720.46. "The global economy is becoming increasingly unstable yet investors in the U.S. have been either excessively optimistic at worst or at best, complacent," said Bruce Bittles, chief investment strategist of Robert W. Baird & Co in Nashville. "The market is vulnerable to any surprise news and that's exactly what happened today," he said. European shares sunk to a three-week closing low, with the FTSEurofirst 300 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 early afternoon at $1.4227, still down 1.4 percent and on track for its biggest one-day drop since late November. The euro also lost 2.2 percent to 117.28 yen. 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. Pressure on Portugal also grew after the anti-euro True Finns party scored big gains in the Sunday vote and vowed to push for changes to a Portuguese rescue that is expected to total 80 billion euros. SAFE-HAVEN GOLD SHINES Gold prices rallied to record highs of nearly $1,500 an ounce while other commodities tumbled as investors fled to safe-haven assets after S&P's move. Worries about the euro zone's debt problems and inflation in China added to investor jitters. Spot gold, which tracks trades in bullion, rose to an all-time high of $1,497.20 an ounce. Benchmark gold futures in New York rose to a record of $1,498.60 an ounce. "The U.S. debt situation got a reality check," said John Kilduff, partner at Again Capital in New York. "Only precious metals will be seen as attractive in the aftermath of the outlook downgrade." Oil came under pressure after top exporter Saudi Arabia said weak demand had forced it to reduce crude output. Brent crude for June fell $2.28 to $121.17 a barrel, having slipped as low as $121.00. U.S. crude for May fell $2.78 to $106.88, having slipped as low as $106.59. The sell-off in stocks and some commodities pushed up the yen as investors closed riskier trades funded by the low-yielding Japanese currency. The dollar lost 0.8 percent to 82.42 yen, and hit a low of 82.16 yen. In the bond market, investors resisted the temptation to dump Treasuries after the S&P announcement. Shorter-dated U.S. Treasury prices rose as investors scrambled for the lowest-risk investments. The price of 30-year bonds also turned positive in afternoon trading, reversing early losses. Benchmark 10-year Treasury notes were trading 6/32 higher in price to yield 3.39 percent. The long bond rose 3/32 in price to yield 4.46 percent, down from 4.47 percent at Friday's close. Avery Shenfeld, chief economist at CIBC World Markets in Toronto, said the S&P announcement is really only catching up to what the markets have already priced in. "The prospect of an actual default by the U.S. on debt issued in its own currency isn't a realistic worry, in a financial market that has a lot more real worries to deal with, including genuine Eurozone default risks," he said. "We are less concerned over a downgrade to the outlook than we are about the growth implications of turning to fiscal belt tightening before the economy has self-sustaining momentum."
