* European shares fall after Fitch downgrades Portugal
* Euro hits 10-mth low vs dollar, weighed also by Greece
* MSCI world equity index down 0.5 pct
By Naomi Tajitsu
LONDON, March 24 (Reuters) - European shares fell on
Wednesday and the euro sank to a 10-month low against the dollar
after ratings agency Fitch downgraded Portugal, fuelling more
concerns about the euro zone's stability.
Euro zone government bond futures recovered early losses
after Fitch cut its sovereign credit rating on Portugal by one
notch to AA-, citing budgetary underperformance in 2009.
[]
Ongoing speculation that Greece may have a difficult time
securing debt aid at an upcoming European Union summit also
highlighted problems facing the euro system, and helped to push
the single currency to a lifetime low against the Swiss franc.
By 1116 GMT, European shares were down 0.3 at 1,069.08,
pulling back from 1,077.61 hit in early trade, its strongest
since October 2008.
"The (stock) market was increasingly overbought so Portugal
is a perfect excuse to book some profits," said Kenneth Broux,
market economist at Lloyds TSB in London.
The euro <EUR=> fell more than 1 percent on the day to
$1.3345 according to Reuters data, hitting its weakest since May
2009 after the Fitch announcement.
Analysts said the euro's weakness despite a
stronger-than-expected reading of the Ifo Institute's survey of
German business sentiment suggested strong downward momentum in
the common European currency. []
The euro traded at 1.4280 Swiss francs, after sinking as low
as 1.4232 on electronic trading platform EBS, its weakest since
the single currency was launched in 1999.
The dollar index <.DXY> hit a 10-month high of 81.632 as the
downgrade and jitters ahead of the EU summit prompted traders to
sell currencies perceived to be higher risk for the safe-haven
dollar, which also pushed it to a one-month high versus the yen.
Diminishing risk appetite sent the MSCI world equity index
<.MIWD00000PUS> down 0.5 percent to 305.32, while U.S. crude oil
prices <CLc1> fell 1.6 percent.
EU SUMMIT IN FOCUS
Market participants awaited the two-day EU summit beginning
on Thursday to see what sort of assistance European nations
offer to Athens, which is struggling to service its ballooning
debts.
Some analysts say the euro may be vulnerable to more losses
even if the two-day summit results in an assistance package for
Greece, as the prospect of any IMF role in such aid may be seen
as acknowledgement of weakness in the euro system.
"The uncertainty over an aid package for Greece is clouding
judgement towards the euro. Even if the IMF comes in, it shows
the EU is not able to help itself," said Antje Praefcke,
currency strategist at Commerzbank.
EU Monetary Affairs Commissioner Olli Rehn on Wednesday said
the union must decide on a way to help debt-laden Greece this
week, or run the risk of causing a "serious disruption" for the
euro. []
His comments came after Germany on Tuesday signalled for the
first time that it may accept European financial aid for Greece
as a last resort, but only if the IMF is involved and euro zone
partners accept tougher budget discipline rules. []
London's FTSE index <> slipped 0.3 percent while
sterling <GBP=D4> fell against the dollar ahead of the final UK
budget before a national election expected in May.
Markets will watch the budget more for its effect on opinion
polls than its economic measures, but there is still plenty of
scope for stocks and government bonds to move on the detail of
what is announced.
(Additional reporting by Neal Armstrong; Editing by Ruth
Pitchford)
