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World stocks sag after Europe credit downgrade

By Pamela Sampson
AP Business Writer / February 14, 2012
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BANGKOK—World stock markets sagged Tuesday after ratings agency Moody's slapped credit downgrades on six European Union countries due to the region's weak economic outlook and uncertain attempts to implement reforms.

Benchmark oil hovered above $100 per barrel while the dollar rose against the euro and the yen.

European stocks fell in early trading following a mixed performance in Asia. Britain's FTSE 100 lost 0.3 percent to 5,887.21. Germany's DAX shed 0.2 percent to 6,726.03 while France's CAC-40 fell 0.4 percent to 3,372.60.

Wall Street was set for losses ahead of the opening bell, with Dow Jones industrial futures down 0.3 percent to 12,801 andS&P futures off 0.3 percent at 1,345.10.

Sentiment in markets was hurt Monday after Moody's Investor Service downgraded its credit ratings on Italy, Portugal and Spain. France, Britain and Austria kept their top ratings but had their outlooks dropped to "negative" from "stable."

Moody's also cut its ratings on the smaller nations of Slovakia, Slovenia and Malta. All nine countries are members of the European Union.

Government debt ratings can play a major role in countries' borrowing costs because a lower rating often means countries must pay higher interest rates on their bonds to attract investors.

Moody's downgrades came amid efforts to prevent recession-mired Greece from a chaotic default on its massive debts.

On Sunday, Greece's parliament approved sharp cuts in civil service jobs, welfare and the minimum wage, required by international leaders for a $171 billion (euro 130 billion) bailout that the country needs to avoid defaulting on its debt next month.

Tom Kaan of Louis Capital Markets in Hong Kong said the Greece factor was starting to diminish in importance as tensions in the Middle East moved to the forefront after bomb attacks on Israeli diplomatic targets that the Jewish state blamed on Iran.

There are fears that an escalation of hostilities between Israel and Iran could set off a conflict across the region and send oil prices skyrocketing.

"The way things are going, it's not going to be good for oil prices or for global confidence," Kaan said.

It was a mixed bag of trading in Asia. Stocks posted solid gains in Japan, where the Nikkei 225 index rose 0.6 percent to 9,052.07, its highest close since Sept. 1. The gains came as the Bank of Japan, following a policy meeting, announced it would buy more government bonds while keeping short-term interest rates near zero to boost the economy.

The U.S. dollar rose to a three-week high against the yen after the central bank's announcement, Kyodo News agency said. That helped Japan's exporters, whose earnings have been trampled by a strong home currency. Toyota Motor Corp. jumped by 1.8 percent and Suzuki Motor Corp. was 1.5 percent higher. Canon Inc. gained 1.5 percent.

Elsewhere, Hong Kong's Hang Seng rose 0.2 percent to 20,917.83 and South Korea's Kospi was 0.2 percent lower at 2,002.64. Australia's S&P/ASX 200 lost 1 percent to 4,242.80.

Mainland Chinese shares edged lower with the benchmark Shanghai Composite Index down 0.3 percent at 2,351.86. The Shenzhen Composite Index was virtually unchanged at 912.31. Shares in real estate, coal miners, travel and hotel-related companies gained while shares in financials and nonferrous companies weakened.

"I think the losses are due to the recent weaker-than-expected economic data," said Zhang Jiuhui, an analyst at Great Wall Securities, based in Beijing.

Benchmark oil for March delivery was down 18 cents to $100.73 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $2.24 to settle at $100.91 on Monday.

In currency trading, the euro fell to $1.3169 from $1.3202 in New York. The dollar rose to 77.91 yen from 77.61 yen.

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AP researcher Fu Ting contributed from Shanghai.

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