Euro tumbles to year-low against dollar as S&P cuts Spain rating
Stocks continue to slide as nervous markets fear wider contagion from Greek debt crisis
EUROPEAN stocks extended recent declines yesterday while the euro dropped to a one-year low against the dollar as Standard & Poor's cut the debt rating of Spain in a sign the European deficit crisis is spreading.
"There's a tremendous amount of uncertainty at the moment," said Sebastien Galy, a currency strategist at BNP Paribas in New York. "The euro should break below $1.30."
European stocks also reacted badly to the news, dropping to a six-week low as Spain's credit rating was cut to AA from AA+ by Standard & Poor's. The Stoxx Europe 600 Index slid 1.3pc to 258.24, the lowest close since March 15.
The gauge extended its decline in the final minutes of trading after S&P followed Tuesday's downgrade of Greece and Portugal by cutting Spain's rating by one step to AA. The index lost 4.4pc in just two days.
Analysts have said that because Spain is a considerably larger economy than debt-riddled Greece and Portugal, any worsening of its credit worthiness could create yet bigger headaches for the euro zone as it deals with Athens's crisis.
"Indeed, Spain is the 800- pound gorilla in the room. Greece and Portugal are small countries, but Spain is about five times their size with regards to GDP," said Win Thin, senior currency strategist, at Brown Brothers Harriman in New York.
Spain's IBEX 35 slid 3pc as Santander tumbled 4.2pc to €9.10, the lowest level since last July.
Banco Bilbao Vizcaya Argentaria plummeted 4.8pc to €9.61. In Dublin, the ISEQ Overall index tumbled 2.5pc to 3257.021 after falling 4.5pc the previous day.
"It's an important risk for the market with the idea of contagion," said Guillaume Duchesne, an equity strategist at French bank BGL BNP Paribas.
"There's speculation surrounding the weakest countries. The market is likely to remain nervous."
European Central Bank President Jean-Claude Trichet and International Monetary Fund Managing Director Dominique Strauss-Kahn briefed German lawmakers yesterday on their Greek aid package, which has met with opposition in Europe's biggest economy.
Greece may need as much as €120bn or almost three times the €45bn initially proposed, Strauss-Kahn said.