- Title: USA: Wall Street opens lower, S&P defends U.S. downgrade
- Date: 9th August 2011
- Summary: NEW YORK CITY, NEW YORK, UNITED STATES (AUGUST 8, 2011) (ORIGINALLY 4:3) (REUTERS) (SOUNDBITE) (English) DAVID BEERS, GLOBAL HEAD OF SOVEREIGN RATINGS AT STANDARD & POOR'S, SAYING: "For medium term fiscal consolidation to be credible, we think there has to be some buy in across the political divide here. And as we have seen with the agreement last week it's proved it is extraordinarily difficult to get a consensus among Democrats and Republicans both on fiscal choices to be made in the budget now and in the future and also on the balance between spending and revenue decisions. So that debate will continue to play out, we're not sure that a consensus is going to build from here."
- Embargoed: 24th August 2011 13:00
- Location: Usa, Usa
- Country: USA
- Topics: Economy
- Reuters ID: LVACYAE05A689XH9WG0LHAXPDM9D
- Story Text: U.S. stocks tumbled on Monday (August 8), tracking a sharp drop in global equity markets after rating agency Standard & Poor's cuts the top-tier AAA credit rating of the United States, rattling already-jittery investors.
The technology heavy Nasdaq fell more than 3 percent at the open.
Market sectors most sensitive to the economy, such as the banking and natural-resource sectors, took the brunt of selling. United States Steel Corp fell 6.2 percent to $31.18 (USD), while Citigroup Inc dropped 5 percent to $31.83.
S&P cut the U.S. long-term credit rating by a notch to AA-plus late Friday on concerns about debt in the world's largest economy. The downgrade could eventually raise borrowing costs for the U.S. government, companies, as well as consumers.
David Beers, Global Head of Sovereign Ratings at Standard & Poor's said that the political divide in Washington over the raise of the U.S. debt ceiling was one of the reasons for the downgrade.
"For medium term fiscal consolidation to be credible, we think there has to be some buy in across the political divide here. And as we have seen with the agreement last week it's proved it is extraordinarily difficult to get a consensus among Democrats and Republicans both on fiscal choices to be made in the budget now and in the future and also on the balance between spending and revenue decisions. So that debate will continue to play out, we're not sure that a consensus is going to build from here," Beers told Reuters.
The move came after a wild week for Wall Street -- its worst in more than two years -- as lingering concerns about sluggish economic growth and fears of a financial meltdown in the euro zone hit sentiment.
Beers also told Reuters that there was a one-in-three chance the U.S. rating could go lower again within six to 24 months.
"What may effect whether the rating fall again is first of all the underlining economic story. I mentioned that this has been a fairly lackluster recovery and so we're watching that very closely because of course it also will influence the future path of public finances. And then of course there is this agreement between congress and the administration last week, the 2.4 trillion ( USD) agreement which is supposed to be implemented in two steps so we will be looking to see if congress follows through fully on what it signed up to," he said.
Even the European Central Bank's dramatic intervention in bond markets, which pushed down yields on Spanish and Italian bonds, was not enough to stem selling The Dow Jones industrial average dropped 215.55 points, or 1.88 percent, to 11,229.06. The Standard & Poor's 500 Index fell 27.71 points, or 2.31 percent, to 1,171.67. The Nasdaq Composite Index lost 58.30 points, or 2.30 percent, to 2,474.11.
The New York Stock Exchange invoked a special regulation known as Rule 48 to smooth trading at the market open.
MSCI's all-country world stock index dropped 2.5 percent and hit its lowest since September 2010.
Safe-haven assets were in demand. Gold vaulted above $1,700 an ounce for the first time on Monday (August 8) and hit a record $1,715.01.
Last week's steep drop in equities wiped about $2.5 trillion off global market valuations. The S&P 500 has fallen over 12 percent since the end of April, with much of that selling coming on heavy volume last week. Prior to Monday, the index had retreated 11 percent in the last 11 sessions.
Analysts said the S&P 500 index could test Friday's intraday low of 1,168.09. Some traders are looking for a pullback to the 32.8 percent retracement of the rally from the index's bear market low on March 2009. That level is around 1,100.
- Copyright Holder: REUTERS
- Copyright Notice: (c) Copyright Thomson Reuters 2011. Open For Restrictions - http://about.reuters.com/fulllegal.asp
- Usage Terms/Restrictions: None