PARIS — European stocks and the euro were higher Thursday in quiet trading after a rating agency cut Portugal’s sovereign debt rating to “junk,” or below investment grade.
The decision by Fitch Ratings to cut Portugal’s sovereign debt rating one notch, to BB-plus from BBB-minus, served as a reminder of the dangers hanging over the euro zone.
Fitch cited its forecast for Portugal’s economy to contract by 3 percent next year, saying “the recession makes the government’s deficit-reduction plan much more challenging and will negatively impact bank asset quality.” Moody’s Investors Service cut the bonds to junk in July, while Standard Poor’s rates them just above that level.
A private research institute’s economic report, meanwhile, showed business sentiment improving in Germany, the largest economy on the Continent.
The Ifo institute said its main business climate index for Germany improved in November to 106.6 from 106.4 in October, the first uptick in four months, and a sign that the German economy “is still performing relatively well despite the international turmoil.”
With markets in New York closed for the Thanksgiving holiday, trading volume was subdued, particularly in contrast from a day earlier. On Wednesday, global equity markets and bonds were upended by the failure of the German government to sell a large portion of the debt it was auctioning, sparking fears that investors might have lost faith in all euro-zone sovereign assets.
In afternoon trading, the Euro Stoxx 50 index, a barometer of euro zone blue chips, rose 1.3 percent, while the FTSE 100 index in London gained 0.2 percent.
German 10-year bonds, which became the focus of attention on Wednesday, continued to fall in price. The yield, which moves in the opposite direction, rose 5 basis points to 2.19 percent. A basis point is one-hundredth of a percent. Portuguese 10-years were trading to yield 10.84 percent, up 27 basis points.
Standard Poor’s 500 index futures rose 0.8 percent. The SP 500 fell 2.2 percent on Wednesday.
The euro rose to $1.3376 from $1.3341 late Wednesday in New York, while the British pound fell to $1.5522 from $1.5555. The dollar fell to ¥77.13 from ¥77.31, and to 0.9185 Swiss francs from 0.9201 francs.
Neil Mellor, a currency strategist at Bank of New York Mellon in London, said there was a feeling in the market “that we’re getting to a tipping point, that we’re definitely close to something,” but he expressed optimism that the Continent would weather the storm.
He said the euro’s level against the dollar, above last year’s low and well above its historical average of around $1.15, suggested that the market was “inclined to give the euro a break.”
“Against the backdrop of a permanent crisis in the euro zone, you have to ask why the euro remains at these levels,” Mr. Mellor said. “That speaks volumes about the market’s view of the euro.”
U.S. crude oil futures rose 0.3 percent $96.50 a barrel. Comex gold futures rose 0.2 percent to $1,701.80 an ounce.
Asian shares were mixed. The Tokyo benchmark Nikkei 225 stock average, which had been closed Wednesday for a holiday, fell 1.8 percent, catching up with the global sell-off. The Sydney market index SP/ASX 200 lost 0.2 percent. In Hong Kong, the Hang Seng index gained 0.4 percent and in Shanghai the composite index added 0.1 percent.
Article source: http://www.nytimes.com/2011/11/25/business/global/daily-stock-market-activity.html?partner=rss&emc=rss
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