S&P’s US debt rating action hits stocks

The world’s major stock indices fell sharply yesterday after rating agency Standard & Poor’s cut the outlook on its AAA rating of US sovereign debt to negative from stable.

The UK’s FTSE 100 index closed at 5870.08 on Monday, down 2.1% on its opening value of 5996.01. The US’s S&P 500 closed 0.6% down, the FTSE Eurofirst 300 was down 1.7% and Japan’s Nikkei 225 fell 0.36%.

The rating outlook revision was prompted by S&P’s concerns over the size of the US’s defecit. It is the first action is the first it has taken on US sovereign debt since the agency started rating it 70 years ago.

The outlook change means there is a one-third chance of a downgrade in the next two years.