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S&P Lowers Outlook on US Debt

April 18, 2011
 Comment:  This confirms what we and many others have been saying about the debt and excessive size of the government.  Printing money does not solve the problem, it only creates more of them.  This could be signaling the beginning of the end, unless drastic cuts are made soon.

FILE – In this file photo taken March 18, 2011, specialist Anthony Campagna, center, works at his post on the floor of the New York Stock Exchange. World stocks sank Monday, April 18, 2011, a day after China’s central bank undertook yet another anti-inflation move in an attempt to get control of fast-rising consumer prices.(AP Photo, file)

Stocks sink after S&P issues warning on US debt

Stocks sharply lower after Standard & Poor’s lowers outlook on US debt

Francesca Levy, AP Business Writer, On Monday April 18, 2011, 12:24 pm EDT

NEW YORK (AP) — Stocks fell sharply after Standard & Poor’s warned that it might lower its rating on U.S. government debt because of mounting budget deficits. More bad news about Europe’s debt crisis also pushed markets lower.

The Dow Jones industrial average and the S&P 500 index both fell to their lowest levels in more than a month.

The Dow fell 204 points, or 1.7 percent, to 12,137. The Standard & Poor’s 500 fell 20, or 1.7 percent, to 1,299. The Nasdaq composite fell 49, or 1.8 percent, to 2,715.

European markets lost even more. France’s CAC-40 was down 2.3 percent and Germany’s DAX lost 2.1 percent.

S&P reaffirmed the U.S. government’s credit rating at AAA but said that concerns over “very large budget deficits and rising government indebtedness” led the agency to lower its outlook on the long-term rating to negative. That means S&P could downgrade the rating in the future. If that were to happen, the U.S. government would have to pay more to borrow money when it issues bonds.

Kim Rupert, managing director of global fixed income analysis at Action Economics, calls the S&P’s move a “warning sign” that the U.S. needs to get its deficit under control. “The worry is that we’re going to be Greece in a couple of years.”

Treasury prices fell after the S&P warning came out but soon stabilized. The yield on the 10-year Treasury note, which rises when the note’s price falls, jumped as high 3.47 percent after the S&P’s warning came out, from 3.38 percent just before. By midday, the yield was back at 3.41 percent, right where it was on Friday.

The euro fell against the dollar as Europe’s debt problems spread. Spain had to pay a much higher interest rate on new debt, there was speculation of a possible default by Greece and a nationalist party in Finland made big gains in an election Sunday.

The euro fell 1.4 percent against the dollar to $1.45.

Citigroup Inc. rose 2 percent to $4.51 after reporting earnings that came in just above analysts’ expectations. The bank’s income fell 32 percent but it was able to set aside less money to cover losses from loan defaults as more customers made payments on time.

Several other big banks are due to report earnings this week. Traders are keen to determine whether banks are lending more. The upcoming reports from Goldman Sachs Group Inc. and Wells Fargo & Co. are “crucial for the markets,” says Quincy Krosby, a market strategist for Prudential Financial.

Industrial supply company W.W. Grainger rose 2.3 percent after reporting that its first-quarter income soared because of a successful expansion into foreign markets.

Egypt’s benchmark stock index fell more than 3 percent following news of an investigation into the head of a Mideast private equity firm. The index has fallen more than 30 percent this year in the wake of the ouster of former president Hosni Mubarak.

Oil prices fell slightly but remain high, at $107 a barrel.

Japan’s nuclear crisis remains a worry after robots sent into two flooded buildings in that country’s crippled nuclear power plant detected unusually high levels of radiation.

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