Sovereign debt fears stalk world markets

AP News
Posted: Dec 09, 2009 10:17 AM

World stock markets fell Wednesday as investors worried about sovereign credit risks, particularly in Europe, in the wake of Greece's rating downgrade.

The FTSE 100 index of leading British shares was down 35.95 points, or 0.7 percent, at 5,187.18 while Germany's DAX fell 62.93 points, or 1.1 percent, at 5,625.65. The CAC-40 was 20.12 points, or 0.5 percent, lower at 3,765.18.

Wall Street opened lower despite earlier indications in the futures markets that U.S. stocks were looking to recoup some of the previous session's losses. The Dow Jones industrial average was 39.30 points, or 0.4 percent, lower soon after the bell while the broader Standard & Poor's 500 index fell 4.48 points, or 0.4 percent, to 1,087.46.

Sentiment in the market has been knocked in the last couple of days by worries about a global debt crisis. Moody's Investor Services said the United States and Britain must get a grip on their public finances to avoid threats to their top triple-A credit ratings and Fitch downgraded its rating on Greece.

"Worries about sovereign credit risk and the ongoing global debt crisis are rattling the market," said Neil Mackinnon, global strategist at VTB Capital.

On Wednesday, British finance minister Alistair Darling delivered a neutral budget statement even though he conceded that the recession was deeper than expected. He said the U.K. economy would likely contract by 4.75 percent this year and government borrowing would rise to 178 billion pounds ($290 billion) in 2009/10, or 12.6 percent of gross domestic product.

Though the figures were fairly alarming, currency traders took the forecasts in their stride, knowing that more substance will likely emerge from whoever wins the next general election due by June. The pound was trading 0.2 percent higher at $1.63 while the euro was flat around 0.90 pounds.

"Unless a deficit reduction program is deemed credible by the rating agencies, the U.K.'s sovereign rating will come under question, which will push up gilt yields and the cost of debt servicing, making the problem worse," said Ian Kernohan, economist at Royal London Asset Management.

Earlier, investors in Asia were rattled after government figures showed that Japan grew far less than originally expected in the third quarter, at an annualized rate of 1.3 percent instead of 4.8 percent, as cautious companies slashed spending.

Japan's Nikkei 225 stock average fell 135.75 points, or 1.3 percent, to 10,004.72, while Hong Kong's key index shed 318.76, or 1.4 percent, to 21,741.76, and Shanghai's benchmark was off 1.7 percent at 3,239.57.

Australia's market lost 0.7 percent and Singapore's market was off 0.3 percent.

The South Korean market bucked the trend and advanced 0.4 percent to 1,634.17 after the International Monetary Fund raised the country's economic growth forecast for 2010. Taiwan's market also rose 0.4 percent.

Oil prices rose as an unexpected drop in U.S. crude supplies suggested demand may be recovering.

Benchmark crude for January delivery was up 29 cents to $72.91 in electronic trading on the New York Mercantile Exchange.

Gold prices continued to fall, losing $3.80 an ounce to $1,139.60.

The dollar fell 0.7 percent to 87.73 yen, while the euro rose 0.1 percent to $1.4718.


AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.