* Portugal downgrade adds to sovereign debt woes, hits euro
* Treasuries prices sink after poor 5-year note auction
* UK budget plan offers no upbeat surprises, gilts fall
* Japan record debt issuance plan signals budget troubles
By Walter Brandimarte
NEW YORK, March 24 (Reuters) - The euro sank to a 10-month
low against the dollar on Wednesday while prices of U.S. stocks
and Treasuries fell on mounting concerns about a spiraling debt
burden in some developed economies.
A downgrade of Portugal's credit ratings by Fitch set the
negative tone in European markets, which have already been
fretting about the fiscal situation of Greece and other weaker
members of the euro zone.
U.S. Treasuries, which typically are a safe haven when risk
appetite ebbs, were also hit by poor demand in an auction of
five-year notes, which left investors apprehensive about a
massive supply of new debt in the next few days.
Further underscoring the fiscal troubles of the main world
economies, Japan approved its new budget with a record $490
billion in new bond issuance. And Britain's final preelection
budget offered no positive surprises for investors, driving
gilt prices lower.
"Risk-averse selling will continue until the European Union
and the IMF can stabilize the debt situation and shift the
narrative to a positive tone," said Andrew Busch, global FX
strategist at BMO Capital Markets in Chicago.
A two-day European Union summit is scheduled to begin on
Thursday and investors will be watching it keenly for a
response to Greece's debt problems.
Fitch Ratings cut Portugal's sovereign credit rating by one
notch to AA-minus and warned of a possible further downgrade.
[]
The move on Portugal encouraged Wall Street investors to
pocket some of the recent gains that had driven the Dow
industrials and the benchmark S&P 500 to 18-month highs on
Tuesday.
"This raises further concerns about other countries in the
area and the markets are haunted by the lack of clarity on how
Europe will deal with the issues," said Todger Anderson,
president of Westcore Funds in Denver, Colorado.
Rick Meckler, president of investment firm LibertyView
Capital Management in New York called the debt downgrade "a
negative because it sends the message that investments that
were previously thought to be safe could have problems."
The Dow Jones industrial average <> closed down 47.69
points, or 0.44 percent, at 10,841.14, while the Standard &
Poor's 500 Index <.SPX> declined 6.23 points, or 0.53 percent,
to 1,167.94. The Nasdaq Composite Index <> fell 15.01
points, or 0.62 percent, to 2,400.23.
The MSCI all-country world stock index <.MIWD00000PUS>
plunged 2.4 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 1.28 percent to its highest level since
May last year against a basket of major currencies <.DXY>.
The euro <EUR=> was 1.30 percent lower at $1.3323.
Following the Fitch announcement on Portugal, the single
European currency 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. []
Against the Japanese yen, the dollar <JPY=> was up 2.01
percent at 92.23.
Japan's parliament approved a record $1 trillion budget for
the fiscal year from April, with an all-time high of 44.3
trillion yen ($490 billion) in new bond issuance underlining
its public finance troubles. []
A stronger dollar sent commodity prices down. U.S. crude
oil prices <CLc1> fell $1.30, or 1.6 percent, to $80.61 per
barrel, while spot gold <XAU=> fell as low as $1,084.85 an
ounce, its weakest price since Feb. 12.
Oil prices also fell after government data showed a
larger-than-expected increase in U.S. crude stocks last week.
TREASURIES NOT IMMUNE
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 over two months,
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 notes
were on track for the worst daily performance in more than
seven months.
The 30-year bond <US30YT=RR> lost 58/32, sending the yield
to 4.7198 percent.
Ten-year British gilts prices fell sharply after British
finance minister Alistair Darling announced only a modest
improvement for the government's planned borrowing needs. June
gilt futures <FLGM0> fell 54 ticks on the day to 114.95.
(Additional reporting by Leah Schnurr and Vivianne Rodrigues;
Editing by Leslie Adler)
