* Potential Greek debt restructuring batters euro
* U.S Treasuries gain, shrugs off S&P cut of U.S. outlook
* World stocks tumble; safe-haven gold shines
(Updates prices, adds details, comment)
By Wanfeng Zhou
NEW YORK, April 18 (Reuters) - Renewed worries about
Europe's debt crisis and a downgrade of the U.S. credit outlook
by Standard & Poor's spurred a sell-off in major world stock
markets on Monday.
The euro was on track for its biggest one-day decline in
five months against the U.S. dollar on fears that Greece will
have to restructure its debt possibly as early as the summer.
Rating agency Standard & Poor's revised its outlook on the
United States to negative from stable, citing a "material risk"
that policymakers may not reach agreement on proposals to trim
its large budget deficit. See []
While the S&P maintained the country's top AAA credit
rating, it said the move signals there's at least a
one-in-three chance that it could cut the long-term rating
within two years.
"On a day when sovereign debt troubles have returned to
haunt the euro, S&P's announcement added salt to the wound,"
said Kathy Lien, director of research at GFT in New York.
"Investors were risk averse going into the New York open and
will now remain cautious or nervous throughout the North
American trading session."
MSCI's all-country world stock index <.MIWD00000PUS>
started what is in many places a holiday-shortened week by
losing 1.7 percent.
Wall Street stocks tumbled in heavy volume as the S&P's
move added to worries about the global economy after China
moved to curb liquidity. At one stage, the S&P 500 fell below
1,300 for the first time since March 24.
The Dow Jones industrial average <> dropped 192.73
points, or 1.56 percent, to 12,149.67. The Standard & Poor's
500 Index <.SPX> dropped 19.33 points, or 1.46 percent, to
1,300.35. The Nasdaq Composite Index <> dropped 44.26
points, or 1.60 percent, to 2,720.46.
"The global economy is becoming increasingly unstable yet
investors in the U.S. have been either excessively optimistic
at worst or at best, complacent," said Bruce Bittles, chief
investment strategist of Robert W. Baird & Co in Nashville.
"The market is vulnerable to any surprise news and that's
exactly what happened today," he said.
European shares sunk to a three-week closing low, with the
FTSEurofirst 300 <> off 1.7 percent.
The euro hit a two-week low against the dollar of $1.4155
<EUR=>. It recovered some of the losses to be quoted early
afternoon at $1.4227, still down 1.4 percent and on track for
its biggest one-day drop since late November. The euro also
lost 2.2 percent to 117.28 yen <EURJPY=>.
German government sources said they did not believe Greece,
which sealed a 110 billion euro ($157.7 billion) bailout from
the EU and IMF last year, would make it through the summer
without restructuring. The Greek government has denied
repeatedly that it plans to restructure. See []
Pressure on Portugal also grew after the anti-euro True
Finns party scored big gains in the Sunday vote and vowed to
push for changes to a Portuguese rescue that is expected to
total 80 billion euros.
SAFE-HAVEN GOLD SHINES
Gold prices rallied to record highs of nearly $1,500 an
ounce while other commodities tumbled as investors fled to
safe-haven assets after S&P's move. Worries about the euro
zone's debt problems and inflation in China added to investor
jitters.
Spot gold <XAU=>, which tracks trades in bullion, rose to
an all-time high of $1,497.20 an ounce. Benchmark gold futures
in New York <GCM1> rose to a record of $1,498.60 an ounce.
[]
"The U.S. debt situation got a reality check," said John
Kilduff, partner at Again Capital in New York. "Only precious
metals will be seen as attractive in the aftermath of the
outlook downgrade."
Oil came under pressure after top exporter Saudi Arabia
said weak demand had forced it to reduce crude output. Brent
crude for June <LCOc1> fell $2.28 to $121.17 a barrel, having
slipped as low as $121.00. U.S. crude <CLc1> for May fell $2.78
to $106.88, having slipped as low as $106.59.
The sell-off in stocks and some commodities pushed up the
yen as investors closed riskier trades funded by the
low-yielding Japanese currency. The dollar lost 0.8 percent to
82.42 yen, and hit a low of 82.16 yen.
In the bond market, investors resisted the temptation to
dump Treasuries after the S&P announcement. Shorter-dated U.S.
Treasury prices rose as investors scrambled for the lowest-risk
investments. The price of 30-year bonds also turned positive in
afternoon trading, reversing early losses.
Benchmark 10-year Treasury notes <US10YT=RR> were trading
6/32 higher in price to yield 3.39 percent. The long bond
<US30YT=RR> rose 3/32 in price to yield 4.46 percent, down from
4.47 percent at Friday's close.
Avery Shenfeld, chief economist at CIBC World Markets in
Toronto, said the S&P announcement is really only catching up
to what the markets have already priced in.
"The prospect of an actual default by the U.S. on debt
issued in its own currency isn't a realistic worry, in a
financial market that has a lot more real worries to deal with,
including genuine Eurozone default risks," he said.
"We are less concerned over a downgrade to the outlook than
we are about the growth implications of turning to fiscal belt
tightening before the economy has self-sustaining momentum."
(Additional reporting by Rodrigo Campos, Richard Leong, Chuck
Mikolajczak, Barani Krishnan, Robert Gibbons and Frank Tang in
New York; Editing by Martin Howell)
