Moody's Investors Service on Monday downgraded Greece's government bond ratings into "junk" territory, citing the risks in the rescue package for the debt-ridden country from the Eurozone and International Monetary Fund.
Moody's cut the rating by four notches, to "Ba1" from "A3," and also downgraded Greece's short-term issuer rating to "Not-Prime" from "Prime."
The downgrades reflects concern that the country could fail to meet its obligations to cut its deficit and pay down its debt. While the support package does create a credible set of reforms, the lower rating is consistent with the risks associated with it, Moody's said.
Stocks faltered in the last hour of trading Monday after investors gave in to anxiety about Europe's economy.
The Dow Jones industrial average erased an early gain of 118 points to end down 20. The Standard & Poor's 500 also fell slightly, while the Nasdaq composite rose less than a point.
Stocks began the day higher following a report that industrial production in the 16 countries that use the euro grew more than expected in April. That boosted confidence that Europe could solve its debt problems and pushed the euro above $1.22 for the first time since June 4.
Investors have been concerned that government spending cuts aimed at slashing debt would hurt Europe and slow a global recovery. However, there have been few signs so far that the budget cuts needed to contain rising debt in countries like Greece, Spain and Portugal have slowed economies around the world.
Greece is still enough of a concern that bad news about the country's well-known problems was enough to help take down the market's advance. Traders at first shrugged off news that credit rating agency Moody's lowered its rating on Greece's debt to "junk" status. But in the final hour, many traders apparently decided the safest move was to take money out of the market. They were particularly uneasy after the Dow had risen 312 points in the prior two days.
The downgrade of Greece's debt wasn't the first and analysts said the market's response signals that traders are still jittery about Europe.
"When you have ratings downgrades, it's the proverbial fire truck arriving at the barn after it has burned down," said Kent Engelke, chief economic strategist at Capitol Securities Management in Glen Allen, Va. "Ultimately, economic activity will trump these other fears facing the market."
Bank stocks fell on concerns about European debt and about a financial overhaul bill in Congress. Some traders are worried that the merged version of the House and Senate bills will be tougher on banks than analysts had anticipated. Tighter restrictions could cut into profits. JPMorgan Chase & Co. fell 2 percent, while Goldman Sachs Group Inc. lost 1.6 percent.
Source : Yahoo finance, Associated Press
Monday, June 14, 2010
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