* Wall St edges down, dollar gains on Europe debt worries
* Treasuries prices sink after poor 5-year note auction
* Euro at weakest level since early May 2009
By Walter Brandimarte
NEW YORK, March 24 (Reuters) - The euro sank to a 10-month
low against the dollar and U.S. stocks fell on Wednesday after
a downgrade of Portugal's credit rating raised worries about
Europe's growing debt burden.
Commodity prices fell as the dollar gained ground, with
gold at a six-week low. Prices of U.S. Treasuries, which
typically are a safe haven when risk appetite ebbs, declined as
investors sold bonds on worries about a massive supply of new
debt.
Fitch Ratings cut Portugal's sovereign credit rating by one
notch to AA-minus and warned of a possible further downgrade.
[]
Ongoing speculation that debt-stricken Greece may have a
difficult time securing aid at a European Union summit that
begins on Thursday highlighted problems facing the euro zone,
and helped push the euro to a lifetime low against the Swiss
franc.
"I think this is just the beginning of a long process of
downgrading a number of major governments until they put their
debt in order," said Rick Meckler, president of investment firm
LibertyView Capital Management in New York.
"It's a negative because it sends the message that
investments that were previously thought to be safe could have
problems."
On Wall Street, stocks fell as the cut in Portugal's debt
rating prompted profit-taking after a recent rally that had
driven the Dow industrials and benchmark S&P 500 to 18-month
highs on Tuesday.
The Dow Jones industrial average <> declined 39.91
points, or 0.37 percent, to 10,848.92, while the Standard &
Poor's 500 Index <.SPX> lost 5.16 points, or 0.44 percent, to
1,169.01. The Nasdaq Composite Index <> was down 14.50
points, or 0.60 percent, at 2,400.74.
"I think people are looking for a reason to take some
profits, given the overbought nature, and the much stronger
dollar over the Greece concerns and Portugals's debt being
downgraded is providing that reason today," said Michael James,
senior trader at regional investment bank Wedbush Morgan in Los
Angeles.
Wednesday's data sent mixed signals about the U.S. economy,
with new home sales unexpectedly falling to a record low in
February. In contrast, new orders for durable goods, which
include long-lasting manufactured products such as washing
machines, rose for the third straight month in February.
Inventories of durable goods posted their biggest gain since
December 2008. []
The MSCI all-country world stock index <.MIWD00000PUS> lost
0.6 percent. In Europe, the FTSEurofirst 300 <> index of
top shares seesawed during most of the session to end
practically unchanged. It closed 0.01 percent higher after
earlier hitting its highest level since October 2008.
"The market was increasingly overbought, so Portugal is a
perfect excuse to book some profits," said Kenneth Broux,
market economist at Lloyds TSB in London.
DOLLAR SOARS
Concerns about the fiscal situation of the euro zone
weighed on the euro and created safe-haven demand for the
dollar, which climbed to its highest level since May last year
against a basket of currencies.
The dollar index, which tracks the performance of the
greenback versus six other major currencies, was up 1.1 percent
at 81.797 <.DXY>.
The euro <EUR=> was 1.15 percent at $1.3343. Following the
Fitch announcement, the euro hit its weakest level against the
greenback since early May 2009.
"Sovereign credit worries in Europe and Japan are leading
to some general risk aversion," said Michael Malpede, a market
analyst at Easy Forex in Chicago.
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 flat versus the Swiss franc at 1.4270 francs
<EURCHF=> after hitting a record low at 1.4233, according to
Reuters data.
Against the Japanese yen, the dollar <JPY=> was up 1.83
percent at 92.06.
A stronger dollar sent commodity prices down. U.S. crude
oil prices <CLc1> fell $1.28, or 1.56 percent, to $80.63 per
barrel, while spot gold <XAU=> fell as low as $1,088.05 an
ounce, its weakest since Feb. 12.
Oil prices also fell after government data showed a
larger-than-expected increase in U.S. crude stocks last week.
Increased aversion to risk did not translate into demand
for U.S. Treasuries, though. Bond prices fell sharply, sending
benchmark 10-year yields to their highest in a month, on
concerns about a large government debt issuance ahead.
A $42 billion auction of five-year U.S. Treasury notes drew
poor investor demand, increasing concerns about Thursday's
auction of $32 billion in seven-year notes.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
37/32 in price, with the yield at 3.8312 percent. The 30-year
bond <US30YT=RR> lost 58/32, sending the yield to 4.7198
percent.
(Additional reporting by Leah Schnurr and Vivianne Rodrigues;
Editing by Leslie Adler)
