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While you were sleeping: Debt doom & gloom persists

While you were sleeping: Debt doom & gloom persists

(BusinessDesk) August 11 - Equities on Wall Street and in Europe swooned amid rumours that a downgrade of France’s AAA credit rating was imminent and concern persisted that the debt crisis had yet to run its course.

While Standard & Poor’s, Moody’s Investors Service and Fitch Ratings all affirmed France’s top credit rating, banks tumbled on both sides of the Atlantic. Societe Generale SA dropped 15%, even as France’s No. 2 lender denied speculation of trouble.

The Stoxx Europe 600 Index closed with a 3.8% drop for the day.

In late trading, the Dow Jones industrial average dropped 1.72%, the Standard & Poor's 500 Index shed 1.31% while the Nasdaq Composite Index fell 1.06%.

Financial stocks on Wall Street suffered along with their European counterparts, with the KBW bank index shedding 6%.

"You've already had situations in Greece, Spain has been in there, Portugal, and now if you are talking about France, which because it's a bigger economy, it probably generates more concern on a comparison basis," Gordon Charlop, managing director of Rosenblatt Securities in New York, told Reuters.

"So there are investors who are a little bit more cautious about European financials and that translates into financials here."

Wall Street’s so-called fear gauge, the CBOE Volatility Index, was last up 8.5% at 38.04, after climbing as high as 44.41 earlier in the session.

Economic fears are weighing heavily on Americans, with a large majority saying the United States is on the wrong track and nearly half believing the worst is yet to come, a Reuters/Ipsos poll said on Wednesday.

The poll reflected growing anxiety about the economy and frustration with Washington after a narrowly averted government default last week, a credit rating downgrade by Standard & Poor's, a stock market dive and a stubbornly high 9.1% jobless rate, according to Reuters.

A worsening economic outlook is considered bad news for companies that depend on discretionary spending. Entertainment company Walt Disney Co shed more than 9%.

Even companies whose fortunes aren’t necessarily tied to the economy are suffering. EON AG plunged after Germany’s biggest utility announced plans to cut more than 10% of its workforce.

In this climate it is easy for gold to sustain its rapid ascent to fresh records.

“Gold will continue to appreciate until there is a fundamental shift in the government policies.” James Dailey, who manages US$185 million at TEAM Financial Management LLC in Harrisburg, Pennsylvania told Bloomberg News.

Gold futures for December delivery were 2.5% higher at US$1,786.80 at 12.34pm on the Comex in New York, after hitting a record US$1,801 earlier today.

Bank of America Merrill Lynch, in a report dated yesterday, raised its 12-month gold-price forecast to US$2,000 on the increased chance for another round of U.S. asset purchases, known as quantitative easing, Bloomberg reported.

(BusinessDesk)

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