Stocks steady after S&P warns about US debt

[April 19, 2011]  LONDON (AP) -- Standard & Poor's warning that it could downgrade the United States' credit rating continued to haunt the markets Tuesday, but hopes for a small recovery on Wall Street helped ease the selling pressure in Europe.

Though the credit rating agency reaffirmed its triple A rating on U.S. debt, it warned that there is a one-in-three chance that the rating could be cut within the next two years as it lowered its outlook to "negative" from "stable." That would be the first move downwards since it started assessments back in 1941.

S&P cited concerns over current borrowing levels and worries that policymakers won't be able to come up with a credible deficit reduction plan.

S&P's warning prompted a big slide in the U.S. and European stock markets on Monday and in Asia on Tuesday. However, there were signs towards the end of Asian trading and in morning trading in Europe that the impact had waned for the moment.

In Europe, the FTSE 100 index of leading British shares was up 0.6 percent at 5,903 while Germany's DAX rose 0.4 percent to 7,058. The CAC-40 in France was 0.7 percent higher at 3,907.

U.S. stocks were poised for a steady opening after suffering their worst day in over a month on Monday -- Dow futures were up 8 points at 12,148 while the broader Standard & Poor's 500 futures were flat at 1,301.

Despite the calmer market tone, analysts said the issue of U.S. debt is going to remain a key concern for a long time, especially if President Barack Obama and the Republican majority in the House of Representatives keep coming to budget agreements at the very last minute -- as occurred earlier this month during budget negotiations.

The calmer tone was also evident in the currency markets, where the dollar gave up some of its big gains on Monday. The U.S. currency enjoyed one of its best days in months in the immediate aftermath of the warning as it garnered support from its widely perceived status as a safe haven asset and rising expectations that the U.S. will have to address its debt issues to assuage market concerns.

"Be in no doubt though that what happened yesterday will focus a lot more minds on the unacceptable position of U.S. debt and that in the political arena it can no longer be shoved under the carpet," said Howard Wheeldon, senior strategist at BGC Partners.

By late morning London time, the euro was 0.3 percent higher at $1.4272 while the dollar rose 0.1 percent to 82.54 yen.

The euro has been under pressure over the past few days on mounting concerns of a possible Greek default. Those concerns have persisted Tuesday, with the yield on Greece's 10-year bonds up another 0.30 percentage point at 14.59 percent.

"The real risk of a Greek restructuring is that it could open a can of worms and lead to similar moves in other peripheral countries," said Jane Foley, a senior currency strategist at Rabobank International.

"In turn this could highlight weaknesses in banks' balances sheets which would have the potential to spark a new wave of concerns about banking sector health."

Earlier in Asia, Japan's Nikkei 225 index slid 1.2 percent to close at 9,441.03 and Hong Kong's Hang Seng index fell 1.3 percent to 23,520.62. South Korea's Kospi gave up 0.3 percent to 2,131.73. Benchmarks in mainland China,

Benchmark crude for May delivery was down 80 cents to $106.32 a barrel in electronic trading on the New York Mercantile Exchange.

[Associated Press; By PAN PYLAS]

Pamela Sampson in Bangkok contributed to this report.

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