* Euro weakens after Moody's warns on Spain credit rating
* U.S. shares drop, track euro lower in late sell-off
(Updates with US market close, Nikkei futures, adds comment)
By Daniel Bases and Alina Selyukh
NEW YORK, Dec 15 (Reuters) - Prospects for a credit
downgrade in Spain, combined with upbeat U.S. economic data,
led to a sharp downturn for the euro versus the U.S. dollar on
Wednesday, while Wall Street shed gains in a late sell-off.
Oil traded in New York rose after the U.S. government
announced an unexpectedly large decline in U.S. crude
inventories, the biggest weekly drop in eight years.
U.S. stocks struggled for much of the session, but gave in
to a late sell-off for a third day in a row.
Early indications pointed to a flat opening for stocks in
Tokyo on Thursday as Nikkei futures traded unchanged at 10,375
<NKH1>.
Stocks tracked the euro zone currency's losses, incurred
after Moody's Investors Service put Spain's sovereign credit
rating on review for a possible downgrade. []
"We had a lot of very positive data today, but we still
have persistent euro-zone concerns, which is creating this
tussle in the market," said Judy Moses, a San Francisco-based
portfolio manager at Evercore Wealth Management.
She added that seasonal issues related to the end of the
year could be affecting traders.
"Managers don't want to show high cash balances after such
a strong year, but at this point, they also want to lock in
gains."
At the close of trade, the Dow Jones industrial average
<> fell 19.07 points, or 0.17 percent, to 11,457.47. The
index earlier hit a fresh 52-week intraday high. The Standard &
Poor's 500 Index <.SPX> lost 6.36 points, or 0.51 percent, to
1,235.23. The Nasdaq Composite Index <> dropped 10.50
points, or 0.40 percent, to 2,617.22.
A deal that President Barack Obama struck with Republicans
to extend the Bush-era tax rates sailed through the U.S. Senate
on Wednesday and will soon go to the House of Representatives,
where it could face steeper opposition, though it is still
expected to pass. []
Some investors say the tax deal, in addition to expected
strong corporate profits, is a reason to hold stocks over the
coming year.
Another positive element going forward is the supportive
trend in U.S. economic data. On Wednesday, reports showed
November industrial output and consumer inflation, plus
December New York-regional manufacturing data, pointing to an
accelerating recovery.
European share prices ended lower after Moody's
announcement, ending a two-week rally.
The FTSEurofirst 300 <> index of top European shares
closed down 0.46 percent at 1,127.25. The index was up over 6
percent in the 10 days leading up to the Moody's announcement.
Spain's Banco Santander fell 2.64 percent <SAN.MC>.
Share prices in Japan slipped from Tuesday's seven-month
closing high. The benchmark Nikkei stock index fell 0.07
percent <>.
EURO DROP
The euro fell early in Asian trade on Wednesday but slumped
further as the global trading day came to a close.
Moody's cited concerns about Spain's mounting debt and 2011
funding needs. The warning included the caveat that while the
Aa1 rating could be cut, Moody's does not expect Madrid to have
to follow Greece and Ireland in requiring a European Union
bailout. []
In late New York action, the euro fell 1.26 percent at
$1.3216. The euro hit an all-time low of 1.2758 against the
Swiss franc on the EBS trading platform <EURCHF=> before
clawing back to 1.2790, still down about 0.4 percent.
The greenback climbed 0.75 percent to 84.26 yen <JPY=>,
while rising over 1 percent against a basket of currencies of
its major trading partners <.DXY>.
Even as the euro fell, investors sniffing for a bargain
swooped in and bought Spain's sovereign bonds in a hunt for
yield.
Spanish government bonds reversed early losses. Ten-year
government bond yields <ES10YT=TWEB> shot up to a high of 6.43
percent before falling past Tuesday's closing level to 5.48
percent, down 7 basis points for the day.
"It's literally a question of people thinking maybe Spain
is too cheap," said Huw Worthington, a European fixed income
strategist at Barclays Capital in London. "People have maybe
cheapened it too much ahead of the auction."
Spain holds a 10- and 15-year bond auction on Thursday.
Benchmark 10-year U.S. Treasuries fell 6/32 of a point in
price, lifting the yield to 3.5 percent <US10YT=RR>. The
30-year bond fell 26/32 of a point, yielding 4.58 percent
<US30YT=RR>.
Spot gold prices fell $17.05 to $1,378.80 <XAU=>.
(Additional reporting by Emily Flitter, Angela Moon, Gertrude
Chavez-Dreyfus, Ellen Freilich, Jeremy Gaunt, Blaise Robinson,
Karen Brettell, Ryan Vlastelica; Editing by Dan Grebler)
