Tags: Fitch | Cuts | Spain | Ratings

Stocks, Euro Plunge After Fitch Cuts Spain's Ratings, Warns of Slower Growth

Friday, 28 May 2010 01:00 PM

 

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Fitch Ratings cut Spain's credit ratings to AA plus from AAA on Friday, saying its economic recovery would be more muted than the government forecast due to strict austerity measures passed this week.

U.S. stocks closed more than 1 percent lower and the euro dropped after the downgrade was reported.

Fitch's downgrade follows a cut by another agency Standard and Poor's last month and heaps more pressure on the government, battling to reassure markets its fiscal, political and social woes will not end up in a Greek-style debt crisis.

"The downgrade reflects Fitch's assessment that the process of adjustment to a lower level of private sector and external indebtedness with materially reduce the rate of growth of the Spanish economy over the medium-term," Fitch's analyst Brian Coulton said in a statement.

It kept its outlook stable.

The government is struggling to agree crucial labor reforms with unions and the threat of a general strike. It just managed to pass a strict austerity package on Thursday by a single vote.

S&P downgraded Spain's ratings one notch to AA from AA plus with a negative outlook at end-April.

Moody's is the only agency that has not downgraded Spanish sovereign credit rating and still gives it a rating of AAA.

One Madrid-based banker said the impact on markets would be neutral, seeing as the agency had kept its outlook stable.

"Fitch is bringing its rating in line with S&P's," the banker, a director at an international bank, said, asking not to be named. "The hound dogs are always chasing after each other. But with the outlook still stable, the impact should be null to positive."

On Wall Street, the Dow Jones industrial average dropped 122.36 points, or 1.19 percent, to 10,136.63. The Standard & Poor's 500 Index fell 13.65 points, or 1.24 percent, to 1,089.41. The Nasdaq Composite Index declined 20.64 points, or 0.91 percent, to 2,257.04.

For the week, the Dow edged 0.6 percent lower, the S&P 500 gained 0.2 percent and the Nasdaq added 1.3 percent.

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.

In late New York trading, the euro was at $1.2271, down 0.8 percent, after dipping as low as $1.2265, according to electronic trading platform EBS.

The euro was on track for a hefty 7.7 percent decline in May, in what would be the sixth consecutive monthly fall and the biggest percentage drop since January 2009.


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