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While you were sleeping: Greece takes another hit

Tuesday 15th June 2010

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US stocks gave up some of their early gains after Moody’s Investors Service cut Greece’s credit rating to junk, rekindling worries Europe’s debt crisis would jeapardise the global economic recovery.

Moody's downgraded Greek government bond ratings, citing the risks in the euro zone/IMF rescue package for the debt-laden country.

The agency downgraded the rating by four notches to Ba1, placing it one notch into junk status. The outlook is stable. Greece is already rated junk by Standard & Poor’s.

The rescue package "effectively eliminates any near-term risk of a liquidity-driven default and encourages the implementation of a credible, feasible, and incentive-compatible set of structural reforms, which have a high likelihood of stabilising debt service requirements at manageable levels," said Moody's senior analyst Sarah Carlson.

"Nevertheless, the macroeconomic and implementation risks associated with the program are substantial and more consistent with a Ba1 rating.”

In late trading, the Dow Jones Industrial Average rose 0.35%, the Standard & Poor’s 500 Index gained 0.39% and the Nasdaq Composite advanced 0.59%. The S&P 500 had been up 1.1% before Moody’s released its decision.

Among the most active stocks on Wall Street were JPMorgan, Wells Fargo, Caterpillar, United Technologies and Intel.

The Chicago Board Options Exchange Volatility Index fell 1.95% to 28.23.

The Stoxx Europe 600 Index advanced 1.2% to 252.54, the highest close since May 13.

The FTSE 100 gained 0.74%, France’s CAC 40 rose 1.98% and Germany’s DAX climbed 1.28%.

Among the most active stocks in Europe were BHP Billiton, Rio Tinto, Weir Group and Axa.

British energy giant BP unveiled a plan to vastly increase the amount of oil it was capturing from its blown-out well in the Gulf of Mexico as President Barack Obama arrived there to assert leadership in clean-up efforts.

BP said it could boost the volume of oil it was capturing from around 15,000 barrels a day now to 40,000-53,000 barrels by the end of this month and 60,000-80,000 by mid-July. Yet it could still not guarantee collecting all of the gushing crude.

BP chief executive Officer Tony Hayward is set to testify before Congress this week and Chairman Carl-Henric Svanberg will answer a summons to the White House as politicians demand BP stops its dividend and pays laid off oil-rig workers.

In London BP shares tumbled 9.3% on concern about the final bill for the spill and whether BP would pay its quarterly dividend.

The spill’s cost might reach US$40 billion, bank Standard Chartered estimated last week, triple the US$12.5 billion price tag Sanford C Bernstein projected on April 30, Bloomberg News reported.

US Treasuries fell on evidence the global economy was recovering.

A report showed Europe’s industrial production increased in April more than forecast. Treasuries pared losses after Moody’s cut the rating of Greece to below investment grade.

The yield on the 10-year note rose six basis points, or 0.06 percentage point, to 3.30% at 1.48pm in New York, according to BGCantor Market Data.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 1.11% to 86.54.

The euro rose as the economic data eased some concern about Europe's recovery. Analysts said most investors had anticipated Moody’s move on Greece.

"We've been trading with this for a long time and just the facts that the agencies finally recognise reality doesn't have too much impact," Sebastien Galy, senior strategist at BNP Paribas in New York, told Reuters.

"Asset managers are fairly smart people and anticipated this, as did pension funds, a long time ago."

The euro rose 1% to US$1.2234.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 1.59% to 259.98.

Oil prices rose more than 2% as optimism about global economic recovery boosted fuel demand expectations.

At 12.14pm EDT, US crude for July was up US$1.82, or 2.47%, at US$75.60 a barrel, having reached a US$75.99 intraday high, which still had prices well below a 19-month high above US$87 in early May.

Gold settled lower but rebounded in late business to bounce above US$1,220 an ounce, after the downgrade to Greece’s credit rating reawakened fears about excessive debt levels in several euro zone countries.

"If anything, it just sort of continues to refresh those trends we have seen -- long dollar, long gold, short the European currencies," Zachary Oxman, managing director with TrendMax Futures in Encinitas, California, told Reuters.

"Moody's coming out and reigniting the fire, so to speak, is just going to remind everybody that this is not over yet, and it's not getting any better right now. It is a reminder that there are still a lot of problems out there."

Spot gold was bid at US$1,222.15 an ounce at 1.41pm EDT, down from US$1,225.40 late in New York on Friday. U.S. gold futures for August delivery cut losses by half, settling down US$5.70 at US$1,224.50.

Precious metals rose in line with other commodities. Palladium, the biggest climber with gains of more than 3%, was last at US$456.50 an ounce against US$439, while platinum was at U$1,559 against US$1,539.50.

Silver was bid at US$18.37 an ounce against US$18.18.

US copper futures started the week on solid footing Monday morning, rallying more than 3% to touch the psychological US$3.00 per pound.

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