* S&P cuts Japan's long-term debt rating one notch
* ECB's Bini Smaghi expresses inflation concern
* Commodity prices sink; gold at 3-month low; oil down
* Global share prices slightly stronger
By Daniel Bases
NEW YORK, Jan 27 (Reuters) - The yen fell sharply against
both the U.S. dollar and the euro on Thursday after Standard &
Poor's cut Japan's long-term credit rating while the increased
prospect of rising European interest rates weighed on
commodities.
Wall Street stock indexes held near 29-month highs, boosted
by strong earnings from companies like heavy equipment maker
Caterpillar Inc <CAT.N> , news that also supported European
equities.
Standard & Poor's cut Japan's rating one notch to AA-minus,
citing the country's ballooning deficit, which it said will
further reduce Tokyo's already restricted fiscal flexibility.
The move will have a limited impact on Japan's ability to
raise money on financial markets, but it raised a red flag with
investors about other leading countries' fiscal imbalances.
"It is reasonable to expect that the Japanese downgrade
will raise concerns over the sovereign rating of the U.S.,"
said Vasileios Gkionakis, macro strategist at Fulcrum Asset
Management LLP in London, which oversees $900 million in
assets.
The euro's gains were sharply curtailed against the U.S.
dollar on profit taking and a rebound in the greenback based on
lower gold prices.
Commodity prices were mostly lower as the prospect of
rising interest rates in Europe grew after European Central
Bank member Lorenzo Bini Smaghi said an expected rise in
imported goods inflation could not be ignored. []
"The ECB has started to show more concern about secondary
price pressures, and the market has acknowledged that," said
Gavin Friend, currency strategist at nabCapital.
The euro hit a two-month high of $1.3759, but later pared
gains to trade at $1.3708 <EUR=>, up 0.08 percent. Against the
yen, however, the euro held onto gains, up 0.89 percent at
113.68 <EURJPY=>.
Bini Smaghi's comments went to the heart of current
investor concerns, highlighting the potential for inflation to
prompt central banks to raise interest rates at a time when low
rates are seen as key to boosting renewed economic growth.
Gold prices fell to a three month low, <XAU=> off $25.14,
or 1.87 percent, to $1,320.30 on the growing expectation that
higher rates would would ultimately make bullion a less
attractive investment.
U.S. light sweet crude oil <CLc1> fell $1.16, or 1.33
percent, to $86.17 per barrel.
STOCKS EDGE UP
Global stock markets were mostly higher, but only just.
In midday New York trade, the Dow Jones industrial average
<> was up 16.57 points, or 0.14 percent, at 12,002.01. The
Standard & Poor's 500 Index <.SPX> was up 2.06 points, or 0.16
percent, at 1,298.69. The Nasdaq Composite Index <> was up
15.59 points, or 0.57 percent, at 2,755.09.
Caterpillar <CAT.N> shares rose 0.5 percent to $96.26 after
it reported a stronger-than-expected quarterly profit.
Movie rental company Netflix Inc <NFLX.O> soared to a
lifetime high of $211.3,0 and electronics test equipment maker
Teradyne Inc <TER.N> jumped 10.9 percent to $16.22. Both posted
results Wednesday after the close.
World stocks as measured by MSCI <.MIWD00000PUS> were up
around 0.09 percent. The pan-European FTSEurofirst 300 <>
index of top shares closed up 0.16 percent, led by strength in
mining stocks.
Before the S&P announcement, Japan's Nikkei average <>
gained 0.7 percent.
Euro zone government debt yields rose as investors sold
bonds, and the premium investors demand to hold paper from
peripheral euro zone nations rather than German debt also
widened.
Benchmark 10-year U.S. Treasuries gained back lost ground
to trade unchanged, yielding 3.41 percent <US10YT=RR>.
(Additional reporting by Nick Zieminski, Ryan Vlastelica,
James B. Kelleher, Marc Jones, James MacKenzie, Jeremy Gaunt,
Joanne Frearson and William James; Editing by Leslie Adler)
