* S&P cuts Japan's long-term debt rating one notch
* ECB's Bini Smaghi expresses inflation concern
* Gold drops to four-month low; oil at two-month low
* Global share prices slightly stronger
(Updates with U.S. market close, comment, prices)
By Daniel Bases
NEW YORK, Jan 27 (Reuters) - The Japanese 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
prospect of higher European interest rates weighed on
commodities' prices.
Wall Street stock indexes held near 29-month highs, boosted
by strong earnings from companies like heavy equipment maker
Caterpillar Inc <CAT.N>.
Standard & Poor's cut Japan's rating one notch to AA-minus,
citing the country's ballooning fiscal deficit, but Japanese
stock markets, which closed before the downgrade news, appeared
poised to open higher on Friday as Nikkei futures traded in
Chicago <NKH1> rose 55 points to 10,510.
S&P's 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 government budget deficits in other developed
economies.
"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 yen fell to a two-month low against the euro and a
two-week low against the U.S. dollar. The euro in turn was
boosted against the greenback, after European Central Bank
member Lorenzo Bini Smaghi said an expected rise in the prices
of imported goods could not be ignored. []
Commodity prices were mostly lower as the prospect of
rising interest rates in Europe grew. Bini Smaghi, one of six
ECB executive board members, added his voice to a growing
chorus of concern among the central bank's policy makers over
inflation in commodities and emerging-economy made goods.
"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 $1.3726 <EUR=>, up 0.21 percent. Against the
yen, however, the euro held onto gains, up 0.97 percent at
113.77 <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 four month low, <XAU=> off $33.98, or
2.53 percent, to $1,311.50 on the growing expectation that
higher rates would would ultimately make bullion a less
attractive investment. []
Talk of more oil output from OPEC cooled crude prices. U.S.
light sweet crude oil <CLc1> fell $1.69, or 1.94 percent, to
settle at a two-month low of $85.64 a barrel. []
STOCKS EDGE UP
Global stock markets were mostly higher. Mixed U.S.
economic data on Thursday pointed toward growth momentum with
U.S. housing and factory data higher, but concerns lingered
about employment as weekly claims for jobless benefits were
larger than expected. []
Economists said they expected Friday's reading of gross
domestic product to show the U.S. economy picking up speed
albeit short of the pace needed to boost job growth.
At the New York close, the Dow Jones industrial average
<> gained 4.39 points, or 0.04 percent, to 11,989.83. The
Standard & Poor's 500 Index <.SPX> rose 2.91 points, or 0.22
percent, to 1,299.54. The Nasdaq Composite Index <>
climbed 15.78 points, or 0.58 percent, at 2,755.28.
Microsoft Corp <MSFT.O> shares rose 0.31 percent to $28.87.
The world's largest software maker surprised Wall Street with a
better-than-expected profit, but its shares stayed flat as
investors expressed concern about the weakness of computer
sales amid a faltering U.S. recovery.
Caterpillar <CAT.N> shares rose 0.91 percent to $96.63
after it reported a stronger-than-expected quarterly profit.
Movie rental company Netflix Inc <NFLX.O> closed at a
record high $210.87, up 15.21 percent on the day after posting
better-than-expected results Wednesday after the close.
World stocks as measured by MSCI <.MIWD00000PUS> were up
around 0.18 percent. The pan-European FTSEurofirst 300 <>
index of top shares closed up 0.16 percent at 1,152.71.
"Corporate earnings season has been pretty good. But there
is a lot of complacency -- investors began the year feeling
good about the trends after a good December. The macro backdrop
may give further cause for concern -- there is still some
fragility, and it will challenge the benign view," said Bill
Dinning, head of strategy at Aegon Asset Management in
Edinburgh.
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 rose 6/32 of a point,
yielding 3.39 percent after demand for an auction of Treasury
debt was met with strong demand. <US10YT=RR>.
(Additional reporting by Reuters correspondents around the
globe)
