* S&P's rating cut of Spain reignites selling of euro
* U.S. share prices mainly higher before Fed rate decision
* Greek/German yield spread hits 1,000 bps before retreat
(Updates U.S. markets, close of European stocks)
By Daniel Bases
NEW YORK, April 28 (Reuters) - The euro fell to a one-year
low on Wednesday and European stocks slid after Standard &
Poor's cut Spain's credit rating, raising anxiety over
sovereign risk in the euro zone, while U.S. equities largely
managed to maintain gains ahead of the Federal Reserve's
interest rate decision.
The downgrade on Spain sapped the euro's efforts to regain
ground on news of an aid package that emerged from a meeting
between German officials and the head of the International
Monetary Fund in Berlin on Wednesday.
On Tuesday S&P had slashed its ratings on Greece to junk
status and downgraded Portugal.
IMF Managing Director Dominique Strauss-Kahn estimated an
aid package for Greece at 100 billion to 120 billion euros over
three years, according to German officials who met with him.
"The hesitant and haphazard reaction of euro zone policy
makers to Greece's predicament underscores the dangers of
contagion," Marco Annunziata, chief economist at UniCredit
Group wrote clients.
"The euro zone has taken over six months to react and is
allowing uncertainty to persist nearly to the eve of the May
redemptions -- this does not bode well for their ability to
react quickly should a second flashpoint burst," he noted,
referring to Greek debt payments coming due next month.
Investors responded to the Spain downgrade by pumping cash
into the traditional safety of gold, though there was little
reaction in U.S. Treasuries ahead of the Federal Reserve's
interest rate decision and policy statement as well as an
auction of five-year notes.
The euro fell to a one-year low of $1.3112, before trading
down 0.24 percent at $1.3131 <EUR=>. The U.S. dollar index, a
measure of the greenback against a basket of major
trading-partner currencies, rose 0.62 percent <.DXY>
Bund futures rose after the Spain downgrade -- one notch to
AA from AA-plus -- while the Spanish/German 10-year bond yield
spread edged out to 119 bps from 116 bps.
European share prices fell for a second straight session as
the Spain downgrade came at the tail end of the trading day,
with banks leading the fall. S&P said it was concerned about a
more protracted period of sluggish growth than previously
expected.
The 10-year Greek/German government bond yield spread
narrowed to 879 basis points after earlier peaking at more than
1,000 basis points <GR10YT=TWEB><DE10YT=TWEB>.
At one point the Greek government's two-year debt yield
surged to 38 percent. []
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For euro zone debt crisis in graphics, click on:
http://r.reuters.com/fyw72j
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In early afternoon trade, the Dow Jones industrial average
<> was up 47.53 points, or 0.43 percent, at 11,039.52. The
Standard & Poor's 500 Index <.SPX> was up 6.56 points, or 0.55
percent, at 1,190.27. The Nasdaq Composite Index <> was
down 2.49 points, or 0.10 percent, at 2,468.98.
Earnings season stayed in high gear, with Dow Chemical Co
<DOW.N> up 5.25 percent to $31.65 after reporting a profit that
beat expectations. For details see [].
U.S. bank shares rose, buoying the S&P 500, with JPMorgan &
Co <JPM.N> up 2 percent to $43.25, while the KBW bank index
<.BKX> added 1.5 percent.
Shares of Goldman Sachs Group <GS.N> rose 1.96 percent a
day after members of a U.S. Senate subcommittee grilled the
bank's executives on its role in the financial meltdown.
Goldman has been accused of fraud by the U.S. Securities and
Exchange Commission. []
"Fundamentals are pretty strong, earnings should continue
to surprise to the upside, and investors are catching their
breath, realizing policy makers will ultimately do the right
thing for Greece," said Paul Zemsky, head of asset allocation
at ING in New York.
U.S. investors also looked ahead to the Federal Reserve's
interest rate decision and accompanying policy statement at the
close of its two-day meeting later on Wednesday. The Federal
Open Market Committee is expected to hold interest rates near
zero and repeat its vow of very low rates for an extended
period. The statement is expected at around 2:15 p.m. EDT.
(1815 GMT) For details, see [].
European shares fell for a second straight session after
recording their biggest one-day fall in five months on Tuesday.
The FTSEurofirst 300 <> index of top European shares lost
1.15 percent to close at 1,056.89 points.
World stocks as measured by MSCI <.MIWD00000PUS> were down
0.96 percent, having lost more than 2 percent on Tuesday. The
more volatile emerging market index <.MSCIEF> lost 1.64 percent
to add to 1.4 percent in the previous session.
U.S. Treasuries fell back from Tuesday's gains ahead of
both the Fed's policy announcement and the sale of $42 billion
worth of five-year notes. The benchmark 10-year Treasury fell
15/32 of a point in price, pushing the yield up to 3.747
percent.
Gold recovered ground to make a new high for the year,
rising 0.31 percent or $3.62 to $1,171.65 <XAU=> on the euro
zone's sovereign risk.
(Additional reporting by Ryan Vlastelica and Richard Leong in
New York, Jeremy Gaunt, Atul Prakash and Jessica Mortimer in
London; Editing by Leslie Adler)
