* Fitch downgrade on Spain sends US stocks into slide
* Euro hits session low after rating downgrade
* Euro on track for 7.7 pct decline in May vs dollar
* Investors shed risk ahead of U.S., UK long weekends
(Updates with New York closing prices)
By Albert H. Yoon
NEW YORK, May 28 (Reuters) - World equities slid and the
euro fell on Friday after a downgrade of Spain's credit rating
sent a new chill through markets already worried about the
European debt crisis.
The downgrade by Fitch Ratings ignited fresh selling in
equities that were already lower after lackluster U.S. economic
data sparked caution ahead of long holiday weekends in the
United States and the UK.
The euro was on track for a hefty 7.7 percent decline
against the dollar in May, in what would be the biggest
percentage drop since January 2009. On Wall Street, the Dow and
the Standard & Poor's 500 registered their worst monthly
percentage losses since February 2009.
Fitch downgraded Spain's credit rating one notch from its
coveted AAA status, saying it expects Spain's rate of economic
growth to be materially reduced over the medium term as it
adjusts to a lower level of debt.
Fitch cited an inflexible labor market and a restructuring
of regional and local savings banks as hindrances to the pace
of adjustment.
"It definitely spooked the market, no doubt about it," said
Terry Morris, senior equity manager for National Penn Investors
Trust Company in Reading, Pennsylvania.
"Up until now it's been mostly Greece and the threat of
Spain and Portugal and Ireland. With Fitch actually downgrading
Spain, it seems as if it is no longer a hypothetical, the
contagion is now real."
The euro fell 0.82 percent to $1.2266 <EUR=EBS>, putting it
on track for its sixth consecutive monthly drop. The euro also
declined versus the yen <EURJPY=>, and was last down 0.9
percent at 111.59 yen.
"We see multiple downgrades ahead for Spain," said Win
Thin, senior currency strategist at Brown Brothers Harriman in
New York. "Indeed, Spain is the 800-pound gorilla in the room.
Greece and Portugal are small countries, but Spain is about
five times their size with regards to GDP."
He said his firm remains negative on the euro. "We think
this is going to be a multi-year bear trend for the euro," he
said.
Major U.S. stock indexes shed more than 1 percent, and U.S.
Treasury debt slightly extended gains, hitting session highs as
investors sought safe haven assets after the Fitch downgrade.
Benchmark 10-year Treasury notes <US10YT=RR> climbed 21/32 in
price, with their yields dropping to 3.29 percent from 3.36
percent on Thursday.
The Dow Jones industrial average <> fell 122.36 points,
or 1.19 percent, to 10,136.61. The Standard & Poor's 500 Index
<.SPX> shed 13.65 points, or 1.24 percent, to 1,089.41 and the
Nasdaq Composite Index <> declined 20.64 points, or 0.91
percent, at 2,257.04.
For the month, the Dow fell 7.9 percent, the S&P shed 8.2
percent and the Nasdaq lost 8.3 percent. The declines were the
worst for the Dow and S&P since February 2009 while the Nasdaq
suffered its worst monthly drop since November 2008.
Markets had been pressured early in the day after a
Commerce Department report that U.S. consumer spending failed
to rise in April after six straight months of gains, cast a
cloud over the outlook for the consumer-driven U.S. economy.
Traders were particularly cautious ahead of the long holiday
weekends in London and New York, and ready to step back and
take profits after a strong equities rally on Thursday.
Technology bellwether Apple Inc <AAPL.O> managed to buck
the downtrend, after Asian and European customers mobbed stores
as the iPad tablet computer debuted outside the United States.
Apple shares rose 1.4 percent. [] Bank of America
Merrill Lynch raised its price target on Apple by $25 to $325
and kept its "buy" rating.
Financial and energy shares were among the day's biggest
decliners. The S&P financial index <.GSPF>lost 2.14 percent and
the S&P energy index <.GSPE> shed 2 percent.
Equities measured by the MSCI All-Country World Index
<.MIWD00000PUS> fell 0.17 percent after earlier hitting a
one-week high. The index is down about 9 percent in May and on
track for its worst monthly loss since February 2009.
In Europe, markets closed ahead of the downgrade of Spain's
credit ratings.
The pan-European FTSEurofirst 300 <> index fell 0.3
percent, with energy shares falling along with a drop in crude
oil prices.
"It looked quite bullish earlier, but investors are taking
risk off the table going into the weekend and also holidays in
the U.S. and the UK on Monday," said Matthew Brown, sales
trader at ETX Capital. "They are not keen to hold equities."
Tokyo's Nikkei average <> closed up 1.3 percent in its
best one-day performance in two weeks as exporter shares
climbed on a halt in the yen's advance.
In energy and commodities, U.S. light sweet crude oil
<CLc1> fell 58 cents, or 0.78 percent, to settle at $73.97 per
barrel, and gold <XAU=> rose $2.71, or 0.22 percent, to
$1213.80.
The Reuters-Jefferies CRB index <.CRB> has declined 8.3
this month as Europe's debt crisis pushed the commodities
benchmark to its worst monthly return since November 2008.
(Additional reporting by Vivianne Rodrigues, Nick Olivari and
Herbert Lash in New York, and Dominic Lau, Jessica Mortimer,
Blaise Robinson, George Matlock and Joanne Frearson in London)
