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Stocks and euro dip on Portugal downgrade

US-based Fitch Ratings cuts Portugal’s sovereign debt rating by one notch to BB-plus from BBB-minus

Written by Agencies | Paris | November 25, 2011 12:44:03 am

European stocks and the euro fell Thursday,giving up earlier gains,after a credit agency cut Portugal’s sovereign debt to “junk,” or below investment grade.

The decision by Fitch Ratings to cut Portugal’s sovereign debt rating one notch,to BB-plus from BBB-minus,served as a reminder of the dangers hanging over the euro zone.

Fitch cited its forecast for Portugal’s economy to contract by 3 per cent next year,saying “the recession makes the government’s deficit-reduction plan much more challenging and will negatively impact bank asset quality”. Moody’s Investors Service cut the bonds to junk in July,while Standard & Poor’s rates them just above that level.

Earlier,European equities and the euro had risen after a private research institute’s economic report showed business sentiment improving in Germany,the largest economy on the Continent.

The Ifo institute said its main business climate index for Germany improved in November to 106.6 from 106.4 in October,the first uptick in four months,and a sign that the German economy “is still performing relatively well despite the international turmoil.”

With markets in New York closed for the Thanksgiving holiday,trading volume was subdued,particularly in contrast from a day earlier. On Wednesday,global equity markets and bonds were upended by the failure of the German government to sell a large portion of the debt it was auctioning,sparking fears that investors might have lost faith in all euro-zone sovereign assets.

In afternoon trading,the Euro Stoxx 50 index,a barometer of euro zone blue chips,fell 0.3 per cent,while the FTSE 100 index in London fell 0.2 per cent.

German 10-year bonds,which became the focus of attention on Wednesday,continued to fall in price. The yield,which moves in the opposite direction,rose 5 basis points to 2.19 per cent. Portuguese 10-years fell more heavily,trading to yield 11.42 per cent,up 84 basis points. A basis point is one-hundredth of a per cent.

Standard & Poor’s 500 index futures fell 0.1 percent. The S&P 500 fell 2.2 percent on Wednesday.

The euro fell to $1.3336 from $1.3341 late Wednesday in New York,while the British pound fell to $1.5501 from $1.5555. The dollar fell to 0.9192 Swiss francs from 0.9201 francs. But the US currency gained against its Japanese counterpart,rising to ¥77.10 from ¥77.31. DAVID JOLLY

France,Germany to let ECB fight inflation

France and Germany agreed to stop arguing over whether the ECB should do more to rescue the euro zone from a deepening sovereign debt crisis. French President Nicolas Sarkozy and German Chancellor Angela Merkel said after talks with Italian Prime Minister Mario Monti that they trusted the central bank and would not touch its mandate.

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