Wall Street tumbles after US downgrade

NEW YORK?? Wall Street tumbled again Monday amid a rout in global stocks after rating agency Standard & Poor?s downgraded the U.S. credit rating for the first time.

S&P cut the long-term debt rating for the U.S. by one notch to AA+ from AAA late Friday. The move wasn't unexpected, but it comes when investors are already feeling nervous about a weak U.S. economy, European debt problems and Japan's recovery from its March earthquake.

Speaking on the downgrade issue at the White House Monday, President Barack Obama said the U.S. will always be a AAA-rated country despite what rating agencies say, and he urged lawmakers to work together to tackle the nation?s deficit.

1. More on S&P downgrade

   1. Wall Street tumbles after US downgrade

      Updated 10 minutes ago 8/8/2011 6:18:34 PM +00:00 Wall Street tumbled again Monday amid a rout in global stocks after rating agency Standard & Poor?s downgraded the U.S. credit rating for the first time.

   2. Remaining countries with AAA credit ratings
   3. Downgrade's full impact may not be felt quickly
   4. NYT: S&P fires back after criticism on debt downgrade
   5. Read the full S&P report in PDF format
   6. Central bank buys bonds to back Italy, Spain
   7. US Chamber disagrees with S&P downgrade
   8. Gold tops $1,700 as investors seek refuge

?We didn?t need a rating agency to tell us we need a balanced, long-term approach to deficit reduction,? he said. ?My hope is that Friday?s news will give us a renewed sense of urgency.?

S&P?s move came after a wild week for U.S. stocks ? the worst in more than two years ? as lingering concerns about sluggish economic growth and heavy public debt loads in developed economies dented investor sentiment.

Story: Obama: US will always be a AAA-rated

The Dow Jones industrial average was lately down over 500 points and trading below 11,000, adding to a loss of over 200 points at the start of trading. The mid-morning slump in stock prices came as S&P downgraded the credit ratings of mortgage lenders Fannie Mae and Freddie Mac and other agencies linked to long-term U.S. debt.

Still, as stocks fell, prices for U.S. government debt rose. That's because Treasurys are still seen as one of the world's few safe investments. The yield on the 10-year Treasury note fell to 2.5 percent from 2.57 percent late Friday. It fell as low as 2.46 percent earlier Monday. A bond's yield drops when its price rises.

But where Treasury prices are at the end of the day will be more important than where they are at the start, Bill O'Donnell, head of U.S. Treasury strategy at RBS Securities, wrote in a report.

Video: What the downgrade means for typical Americans (on this page)

"We will learn more about the future path of Treasury prices at today's close than we will by the open," he said. "I want to see how the market clears and how it synthesizes the cacophony of news of late."

Legendary investor Warren Buffett told CNBC Monday that he's still bullish on America. He said there?s no question that the U.S. debt is still AAA and that he is not changing his mind about Treasurys based on S&P?s downgrade.

Gold is another investment that investors traditionally run to for safety. It rose above $1,700 per ounce for the first time. Its price remains below its 1980 record after adjusting for inflation.

"Investors are concerned about a rising risk of global recession, credit downgrades especially now in the eurozone, such as France, the threat of a major bank bust and a global liquidity trap as investors stay in cash," said Neil MacKinnon, global macro strategist at VTB Capital.

Read the full S&P report in PDF format

Heightened investor anxiety was seen in the stock market's fear gauge, formally known as the Chicago Board of Options Exchange's Volatility Index, which has risen to levels not seen since May 2010, the last time stocks had a correction ? when a market index loses more than 10 percent off its recent highs.

"It tells us investors are panicking," said Brian Reynolds, chief market strategist with WJB Capital Group, a Wall Street firm that handles trading for hedge funds and mutual funds.

China, which holds well over a trillion dollars worth of U.S. government debt, was not pleased that S&P had cut the U.S. debt rating.

"It must be understood that if the U.S., Europe and other advanced economies fail to shoulder their responsibilities and continue their incessant messing around over selfish interests, this will seriously impede stable development of the global economy," said a commentary in the People's Daily newspaper, the mouthpiece of China's ruling Communist party.

Video: US tries to minimize effects of downgrade

In an interview on NBC and CNBC, Treasury Secretary Timothy Geithner said the rating agency "has shown really terrible judgment" and claimed its downgrade wouldn't affect investors' faith in U.S. debt.

Investors are worried that Spain or Italy could become the next European country to be unable to pay its debt. The European Central Bank said it will buy Italian and Spanish bonds in hopes of helping the countries avert a possible default.

Seeking to avert panic spreading across financial markets, the finance ministers and central bankers of the Group of 20 industrial and developing nations issued a joint statement Monday saying they were committed to taking all necessary measures to support financial stability and growth.

Story: Central bank buys bonds to back Italy, Spain

"We will remain in close contact throughout the coming weeks and cooperate as appropriate, ready to take action to ensure financial stability and liquidity in financial markets," they said.

Crude oil, natural gas and other commodities fell on worries that a weaker global economy will mean less demand. Oil fell $3.71 to $83.17 per barrel.

Last week, the Dow Jones industrial average fell 698.63 points. That was its biggest point loss since October 2008, during the financial crisis. The Dow has dropped in nine of the last 11 trading days.

Worries about the U.S. economic recovery have been building since the government said that economic growth was far weaker in the first half of 2011 than economists expected. The economy grew at a 1.3 percent annual rate between April and June, below economists' expectations of 1.7 percent. It expanded at just a 0.4 percent rate in the first quarter.

Then reports showed that the manufacturing and services industries barely grew in July. Job growth was better than economists expected last month. But the 117,000 jobs created in July were still well below the 215,000 that employers added between February and April, on average.

The Federal Reserve will meet on Tuesday, but economists don't expect much to come out of the meeting. The central bank's key interest rate is already at a record of nearly zero, where it has been since 2008. The Fed has also already said that it plans to keep rates low for "an extended period."

Story: Amid criticism on downgrade of U.S., S.&P. fires back

The central bank finished a $600 billion program in June to buy Treasurys in hopes of supporting the economy. Chairman Ben Bernanke said last month that the Fed would step in to help the economy if it further weakened. But some Fed policymakers oppose more bond purchases, saying it could lead to higher inflation.

The Associated Press and Reuters contributed to this report.

Source: http://www.msnbc.msn.com/id/44054114/ns/business-stocks_and_economy/

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