* S&P cuts Greece to "junk" territory, downgrades Portugal
* Euro in biggest 1-day percentage fall against dlr in yr
* Safety bid drives up Treasuries, gold
* U.S. major indexes fall roughly 2 percent
* European equities in biggest sell-off in 5 months
(Updates with close of U.S. markets; adds VIX)
By Jennifer Ablan
NEW YORK, April 27 (Reuters) - Stocks plunged worldwide and
the euro suffered its biggest one-day percentage drop against
against the dollar in a year on Tuesday after Standard & Poor's
cut its credit rating on Greece into "junk" territory and
slashed its ratings on Portugal.
German Bund futures hit a session high after S&P cut its
ratings on Portugal by two notches. The move by S&P sparked an
investor flight to safe havens, driving up U.S. Treasury debt
prices and sending gold to its highest price in 2010.
European equities slid at their fastest rate in five
months, with the pan-European FTSEurofirst 300 index <>
closing down 3.1 percent and Portugal's benchmark index
plunging 5.36 percent. The Greek bank index <.FTATBNK> plunged
9.23 percent, and European bank stocks skidded.
On Wall Street, the news on Greece and Portugal eclipsed
strong earnings and drove stocks to their worst day in nearly
three months. All three major indexes fell about 2 percent.
"It's contagion from the Greece crisis which has spiraled
out of control," said William Sullivan, chief economist at JVB
Financial Group in Boca Raton, Florida.
"There's a flight from sovereign debt issuers that have
suspect national finances and some of the cash coming out of
markets like Greece and Portugal is gravitating to
Treasuries."
Standard & Poor's downgraded Greece into junk territory on
concerns about its ability to implement the reforms needed to
address its high debt burden, cutting its rating a full three
notches to BB-plus, the first level of speculative, or "junk,"
status.
On Portugal, Standard & Poor's cited concerns about
Portugal's ability to deal with high debt levels given the
country's weak economic outlook. It cut the rating by two
notches to A-minus, or four notches above speculative, or
junk.For details see [] and [].
Investors had already been bracing for the next weak link
in the euro zone, as Germany continued to hold out for strict
conditions on the aid package offered to Greece by the European
Union and the International Monetary Fund.
German Chancellor Angela Merkel has said that Greece must
commit to further painful austerity measures and show that it
can return to a sustainable economic path before Germany can
approve aid. []
"The contagion story is really going to take its toll,"
said Win Thin, a currency strategist at Brown Brothers Harriman
in New York.
"There's just a feeling that even with all these
downgrades, we're still playing catch-up and there's still more
to bad news to come," he said. "People know Greece and Portugal
are issues, but the gorilla in the room is still Spain."
In late afternoon trading in New York, the euro was 1.6
percent lower at $1.3173 <EUR=> according to Reuters data. The
single currency traded as low as $1.3167 on Reuters data and
$1.3166 on electronic trading platform EBS <EUR=EBS> and
registered its biggest one-day percentage drop at current
prices.
Five-year credit default swaps on Greek government debt
rose to a record high of 821 basis points from 710.3 basis
points at the New York close on Monday. The cost of insuring
Portuguese debt for five years rose to a record 370.3 basis
points from 311.2 basis points.
Greece is hoping that the 45 billion euro ($59.97 billion)
aid package from the EU and the IMF will arrive in time to
finance a debt roll-over on May 19, but Merkel's comments have
created market jitters as the timing for approving the package
now looks tight.[]
Fears of a Greek default and contagion within the euro zone
prompted a sell-off in Greek and Portuguese bonds. The
Greek/German 10-year bond yield spread <GR10YT=TWEB>
<DE10YT=TWEB> widened to 691 basis points -- the largest gap
since at least early 1998 according to Bank of Greece data --
as investors demanded higher premiums to hold Greek debt.
U.S. EQUITIES POUNDED
In U.S. stock markets, the sell-off was broad, with
economically sensitive sectors such as materials, energy,
financials and consumer discretionary each falling around 3
percent.
The Dow Jones industrial average <> was down 213.04
points, or 1.90 percent, at 10,991.99. The Standard & Poor's
500 Index <.SPX> was down 28.34 points, or 2.34 percent, at
1,183.71. The Nasdaq Composite Index <> was down 51.48
points, or 2.04 percent, at 2,471.47.
The CBOE Volatility Index <.VIX>, a favorite measure of
investor fears, shot up 30.6 percent, the largest daily
percentage gain since October 2008, to 22.81.
In addition to the sovereign ratings downgrades in Europe,
financial stocks were in focus as executives of Goldman Sachs
Group Inc <GS.N> testified before a U.S. Senate panel that is
examining the bank's role in the financial crisis.
"The markets are really selling off on the combination of
the widening sovereign debt crisis and the hammering that is
going on in the Senate hearing," said Alan Lancz, president of
Alan B. Lancz & Associates Inc in Toledo, Ohio.
"Just like in 2008, when you had one big company fall after
another, you're now seeing this spread from Greece to
Portugal," Lancz said.
In appearances before the Senate Permanent Subcommittee on
Investigations kept financial stocks in focus, Goldman
executives strove to fend off accusations they helped inflate
the housing bubble and then made billions off its collapse.
Goldman shares managed to rise, closing up 0.7 percent, but
the S&P financial index <.GSPF> tumbled 3.4 percent.
U.S. Treasury government bonds soared as investors fled to
safe havens.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
30/32, with the yield at 3.69 percent. The 2-year U.S. Treasury
note <US2YT=RR> was up 6/32, with the yield at 0.96 percent.
The 30-year U.S. Treasury bond <US30YT=RR> was up 47/32, with
the yield at 4.57 percent.
In currencies, the dollar was up against a basket of major
trading-partner currencies, with the U.S. Dollar Index <.DXY>
up 0.98 percent at 82.281 from a previous session close of
81.481.
In energy and commodities prices, U.S. light sweet crude oil
<CLc1> fell $2.30, or 2.73 percent, to $81.90 per barrel. The
Reuters/Jefferies CRB Index <.CRB> was down 5.20 points, or
1.87 percent, at 273.18.
Spot gold <XAU=> surged to its highest price in 2010,
gaining as equities losses deepened. Gold hit a high of
$1,171.25 an ounce, before easing to $1,168.75 an ounce.
(Additional reporting by Burton Frierson and Ciara Linnane in
New York; Editing by Leslie Adler)
