Global shares, euro steady after S&P but outlook weak

Mon Jan 16, 2012 7:32am EST
 
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By Richard Hubbard

LONDON (Reuters) - European shares and the euro recovered from early losses on Monday in the wake of a mass downgrade of euro zone sovereign ratings, but trading was choppy with U.S. markets closed and the outlook for Greek debt talks uncertain.

Standard & Poor's stripped France and Austria of their triple-A ratings and cut Italy to the same level as Ireland on Friday, shortly after news emerged that Athens' talks on a bond swap with private creditors, seen as vital to avoid a default in March, had broken down.

Ratings agency Moody's also weighed in on Monday saying its Aaa rating for France might come under pressure if the public debt keeps rising or if Europe's debt crisis worsens.

All of that piles pressure on the euro zone's leaders to shore up defenses, with some glimmers of optimism in the crisis now firmly doused. Investors dumped riskier assets in response, especially bank shares, and sought defensive plays such as UK government bonds, leaving the euro down but not sharply.

"The path of least resistance is a safe haven/risk-off trade," said Jeremy Stretch, currency strategist at CIBC.

The euro fell 0.2 percent against the dollar at $1.2651 and still looked vulnerable to a test of Friday's 17-month low of $1.2624.

The FTSEurofirst 300 .FTEU3 index of top European shares was barely changed from Friday's closing level but the main euro zone bank stock index fell around 1.1 percent on fears the sector could be the next target for rating cuts.

World shares overall .MIWD00000PUS recovered from losses seen in Asian trade to be just 0.2 percent lower. U.S. markets are closed for a holiday on Monday.   Continued...