* Potential Greek debt restructuring batters euro
* U.S Treasuries gain, shrug off S&P's ratings threat
* World stocks tumble; safe-haven gold shines
(Updates prices, adds details, comment)
By Wanfeng Zhou
NEW YORK, April 18 (Reuters) - A threat by Standard &
Poor's to cut its AAA rating of U.S. government debt and
renewed worries about Europe's debt crisis spurred a sell-off
in major world stock markets on Monday.
The weakness started in European markets on fears that
Greece will have to restructure its debt possibly as early as
the summer. That put the euro on track for its biggest one-day
decline in five months against the U.S. dollar.
The sell-off picked up pace later when rating agency
Standard & Poor's revised its outlook on the United States to
negative from stable, citing the risk that policymakers would
fail to agree on proposals to cut its large budget deficit over
the next two years. See []
Longer-dated U.S. government bond prices initially fell but
recovered in afternoon trade. While the U.S. debt outlook is
certainly problematic, it is not as damaging, at least
immediately, as the euro zone's sovereign woes have been,
analysts said.
"This morning's S&P story added to the negative tone
throughout global markets and that has exacerbated the move
lower," said Omer Esiner, chief market analyst at Commonwealth
Foreign Exchange in Washington. "It does very much highlight
the difficult situation in the U.S."
While the S&P maintained the country's top AAA credit
rating, the move signals there's at least a one-in-three chance
that it could cut the long-term rating within two years.
MSCI's all-country world stock index <.MIWD00000PUS>
started what is in many places a holiday-shortened week by
losing 1.5 percent.
Wall Street stocks fell more than 1 percent as the S&P's
revision added to worries about the global economy after China
moved to curb liquidity to counter rising inflation pressures.
Equities ended off their lows in a heavily traded session,
though the decline still amounted to the largest in a month.
Some analysts said the sell-off in equities was overdone,
citing the recovery in the U.S. bond market and fresh worries
about the euro zone.
"The behavior of the bond market suggests that we could get
a rebound in stocks, at least one related to the S&P news,"
said David Joy, chief market strategist at Columbia Management
in Boston, which oversees $347 billion.
The Dow Jones industrial average <> dropped 140.24
points, or 1.14 percent, to end at 12,201.59. The Standard &
Poor's 500 Index <.SPX> fell 14.54 points, or 1.10 percent, to
finish at 1,305.14. The Nasdaq Composite Index <> slid
29.27 points, or 1.06 percent, to close at 2,735.38.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For graphic on global sovereign credit risk:
http://r.reuters.com/dys98r
S&P cuts U.S. credit outlook: http://r.reuters.com/cys98r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
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 late
afternoon at $1.4232, still down 1.4 percent and on track for
its biggest one-day drop since late November. The euro also
lost 1.9 percent to 117.68 yen <EURJPY=>.
The euro's decline came after 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. Worries about the euro zone's debt problems
and the inflation picture in China added to investor jitters.
Spot gold <XAU=> 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 OPEC ministers said high
crude prices could place a major strain on economies on
consumer countries' economies. Brent crude for June <LCOc1>
fell $1.84 to settle at $121.61 a barrel, having slipped to a
session low of $121. U.S. crude <CLc1> for May fell $2.54 to
settle at $107.12, after slipping as low as $106.54.
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 0.5 percent to
82.67 yen, and hit a low of 82.16 yen <JPY=>.
In the bond market, benchmark 10-year Treasury notes
<US10YT=RR> were trading 9/32 higher in price to yield 3.38
percent. The long bond <US30YT=RR> rose 7/32 in price to yield
4.457 percent.
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 Ryan Vlastelica, Rodrigo Campos,
Richard Leong, Chuck Mikolajczak, Barani Krishnan, Robert
Gibbons and Frank Tang in New York; Editing by Frank McGurty)
