* U.S. AAA rating not guaranteed forever-Moody's
* S&P UK credit outlook stirs U.S. debt fears
* Dollar slumps to 2009 low; bond yields jump, stocks fall
* Oil slides toward $61 after hitting 6-month peak
(Adds Moody's, Bill Gross comment)
By Herbert Lash
NEW YORK, May 21 (Reuters) - Stocks sold off on Wall
Street, the dollar tumbled, and U.S. government debt prices
slumped on Thursday on fears the growing U.S. budget deficit
could lead to a credit rating downgrade after Britain got a
wake-up call.
The simultaneous decline in stocks, bonds and the U.S.
dollar marked a departure from a recent pattern in which
investors have taken refuge in bonds and the dollar when stocks
have fallen and vice versa.
Some investors read it as a sign of growing worry over the
amount of debt the U.S. government is issuing to counter the
recession. []
U.S. Treasury debt prices fell on Thursday after the
government said it would sell $101 billion of new notes next
week, adding to worries whether investors can digest all the
debt the government is issuing to pay for its financial
bailouts.
The U.S. dollar plunged to its lowest level this year
against major currencies and gold rose above $950 an ounce to
nearly a two-month high as investors flocked to bullion as a
safe haven.
The euro gained 1.0 percent to trade at $1.3899 <EUR=>,
after hitting $1.3923, its highest level since early January,
while the dollar briefly dipped below 94 yen, a two-month low,
before clawing its way back to 94.25 yen <JPY=>, still down 0.6
percent.
"People are asking, if the UK is having problems like this
then maybe U.S. sovereign debt is also not as solid," said
David Dietze, chief investment strategist at Point View
Financial Services in Summit, New Jersey.
Bill Gross, the co-chief investment officer of fixed-income
fund Pacific Investment Management Co, said he believed the
United States would be eventually lose its AAA rating, but not
for three to four years.
"But the market will recognize the problems before the
rating services -- just like it did today," Gross said in an
interview with Reuters. []
A spokesman for credit rating agency, Standard and Poors,
declined to comment on the U.S. outlook and noted the agency
reaffirmed an AAA rating on the United States in January.
Another rating agency, Moody's, said after the U.S. stock
market closed that it was comfortable with its AAA rating on
U.S. debt, but the rating faced long-term pressures and was not
guaranteed forever. []
Earlier on Thursday, U.S. Treasury Secretary Timothy
Geithner made a reference to U.S. debt when he addressed a
congressional panel, saying the United States would need to
ratchet down its budget deficit swiftly once growth was
restored.
"We must get our fiscal house in order or risk having
government borrowing crowd out productive private investment,"
he said.
Geithner also said the U.S. administration has to make sure
its policies help retain confidence in the dollar's value.
Earlier on Thursday Standard and Poors changed its outlook
on Britains credit rating to negative, putting at risk the UK's
AAA credit rating, citing rising levels of debt.
[].
The Dow Jones industrial average <> closed down 129.91
points, or 1.54 percent, at 8,292.13. The Standard & Poor's 500
Index <.SPX> was down 15.14 points, or 1.68 percent, at 888.33.
The Nasdaq Composite Index <> was down 32.59 points, or
1.89 percent, at 1,695.25.
Shares of big manufacturers dropped, and investors also
pummeled technology shares.
European shares fell, weighed by banks and commodities, as
S&P's potential UK credit cut added to worries sparked by news
on Wednesday that Federal Reserve policy-makers had cut their
U.S. growth forecasts over the next three years.
The pan-European FTSEurofirst 300 <> index of top
shares fell 2.1 percent to 857.52 points, breaking five
successive sessions of gains.
Benchmark euro zone government bond rallied, outperforming
UK gilts as well as higher yielding regional peers, after S&P's
credit rating outlook for Britain.
The U.S. 10-year Treasury notes <US10YT=RR> slid 1-17/32 in
price to yield 3.37 percent. The 30-year bond <US30YT=RR>
traded 3-7/32 lower to yield 4.33 percent.
Oil was dragged down from six-month highs as the lingering
signs of U.S. job market weakness stoked concerns about the
economy and fuel demand.
U.S. crude <CLc1> settled 99 cents lower at $61.05 a barrel
after hitting a six-month high over $62 on Wednesday. London
Brent <LCOc1> fell 66 cents to settle at $59.93 a barrel.
U.S. gold futures for June delivery <GCM9> settled up
$13.80 at $951.20 an ounce in New York.
Asian stocks slipped overnight on the Fed's lowered growth
forecasts. Japan's Nikkei average <> fell 0.9 percent as
the yen strengthened and MSCI's index of Asian shares outside
Japan <.MIAPJ0000PUS> eased 0.5 percent.
(To read Reuters Global Investing Blog click on
http://blogs.reuters.com/globalinvesting. For the MacroScope
Blog click on http://blogs.reuters.com/macroscope. For Hedge
Fund Blog click on http://blogs.reuters.com/hedgehub)
(Reporting by Chuck Mikolajczak, Wanfeng Zhou and Chris Reese
in New York; Joanne Frearson, Ian Chua, Catherine Bosley, Jane
Merriman and Jan Harvey in London; writing by Herbert Lash)
