Debt rating fears may hit stocks

NEW YORK — Fear is creeping back into the stock market.

This week’s sell-off accelerated Thursday, with major market indicators sliding more than 1.5 percent, cutting nearly 130 points off the Dow Jones industrial average.

Investors were unnerved that a credit agency warning about the British government’s debt ratings could signal similar problems for the United States. Many were already starting to think the market moved too high, too fast over the past two and a half months. The Standard & Poor’s 500 index is still up more than 30 percent from 12-year lows reported in early March.

"People are nervous after what they’ve just been through,” said Ron Weiner, president and chief executive of RDM Financial in Westport, Conn. "A pullback of 7 to 10 percent is absolutely appropriate, but if it goes further than that, that suggests the market is more skittish than people think.”

Indicators of investor anxiety spiked. Wall Street’s volatility index, or VIX, jumped more than 8 percent. The VIX had been easing steadily since early March, and investors were encouraged earlier this week when it fell below 30 for the first time since September. On Thursday it rose back above that level, closing at 31.35.

GM deal spurs surge
Meanwhile, gold prices hit a 2-month high as the selling on Wall Street led investors to seek safety.
Bond prices slumped after the Treasury announced another round of debt auctions next week, which will increase the supply of bonds in the market, and the British government debt warning.

The market pulled off its lows following a late-day surge of 15 percent in General Motors Corp.

GM had announced earlier in the day a key agreement with the United Auto Workers on concessions that could help the struggling automaker restructure itself without resorting to bankruptcy court.

Standard & Poor’s rattled investors when it said Britain may have its rating cut because of rising debt levels. That would raise the cost of borrowing for the British government, which is taking a big role in bailing out that country’s stricken banking system, and could mean similar warnings for countries including the United States.




by the associated press