“This is going to destabilize a lot of those funding packages because they are all based on the AAA rating, and now you are going to have AA+ for France and Austria, and maybe down two notches for Italy,” said Alan Valdes, director of floor operations for DME Securities in New York.
The slide on Friday came as investors’ focus shifted back to the euro zone’s debt crisis.
After the markets closed in the United States, S. P. followed through with downgrades of France and Austria as well as seven other members of the 17-nation euro zone.
In recent days, the Standard Poor’s 500-stock index had reached five-month highs on the back of solid economic data in the United States. The tight relationship between American stocks and the euro has broken down in recent weeks, a sign investors have placed less emphasis on the euro zone’s woes.
The Friday sell-off shows Europe’s debt problems can still make American investors skittish, though indexes finished well higher than the day’s lows.
Banks led the decline, as the impending downgrades and lackluster earnings from JPMorgan Chase drove those shares lower. The S. P. financial index fell 0.8 percent, making it the worst performer of the 10 major sectors.
The Dow Jones industrial average dropped 48.96 points, or 0.39 percent, to close at 12,422.06. The S. P. 500 lost 6.41 points, or 0.49 percent, to 1,289.09. The Nasdaq composite index fell 14.03 points, or 0.51 percent, to 2,710.67.
For the week, the Dow rose 0.5 percent, while the S. P. 500 advanced 0.9 percent, and the Nasdaq gained 1.4 percent.
The Treasury’s 10-year note rose 16/32, to 100 5/32. The yield fell to 1.87 percent, from 1.93 percent late Thursday.
Investors will look to earnings next week for insight on how the euro zone’s debt woes may affect profits.
“If you get a weak recession or deep recession in Europe, it is going to hurt our companies and bring our market right back down,” Mr. Valdes said.
JPMorgan Chase slid 2.5 percent, to $35.92 after the bank said that its fourth-quarter profit fell as the European debt crisis weighed on trading and corporate deal-making. Jamie Dimon, its chief executive, expressed renewed concerns about the euro zone debt crisis.
The KBW index of bank stocks slipped 0.4 percent, after a streak of gains. The index was still up more than 10 percent for the year.
Bank of America shares fell 2.7 percent, to $6.61. Goldman Sachs lost 2.2 percent, to $98.96.
Volume was light with about 6.39 billion shares traded on the New York Stock Exchange, N.Y.S.E. Amex and Nasdaq, below the average of 6.68 billion.
The euro fell to a 17-month low on worries of the ratings cuts in the euro zone countries. The downgrade concerns overshadowed a successful sale of Italian debt.
“Things have not been improving in Europe. The timing is not perfect. It is sort of like kicking someone when they are down,” said William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Mass.
World stocks as measured by the MSCI World Equity Index slipped 0.6 percent after earlier falling more than 1 percent.
The pan-European FTSEurofirst 300 index of top shares fell 0.1 percent, to close at 1,017.84 points.
Underpinned by a flood of European Central Bank three-year loans to banks, Italy’s three-year debt costs fell below 5 percent for the first time since September in an auction, spurring hopes it would make it through a stretch of looming refinancing.
Gold fell as the dollar surged against the euro.
Spot gold was down 1 percent, to $1,630.40 an ounce.
“The dollar seems to be the main go-to safe-haven play at the moment,” said David Meger, director of metals trading at futures brokerage Vision Financial Markets.
Oil prices also fell. Oil futures for March delivery dropped 43 cents, to $98.88 in New York.
Article source: http://feeds.nytimes.com/click.phdo?i=5df0a44b51da6b0fdd7c4a931c22fdce
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