Sovereign debt hits Wall St sentiment

AMERICAN stocks fell yesterday as Portugal’s credit rating downgrade and a weak Treasury note auction stirred concerns about sovereign debt.

Major indexes eased a day after hitting 18-month highs, with losses across most sectors on light volume. Worries centered on countries’ ability to pay their debt, bolstering the dollar and hurting commodity-related stocks.

Portugal’s rating was lowered by one notch to AA-minus, compounding problems in the euro zone, where diplomats have still not agreed on a safety net for heavily indebted Greece.

Sentiment also soured after a weak auction of five-year US Treasury notes, the second lackluster debt sale after Tuesday’s tepid auction of two-year notes.

The Dow Jones industrial average fell 52.68 points, or 0.48 per cent, to close at 10,836.15. The Standard & Poor’s 500 Index slipped 6.45 points, or 0.55 per cent, to end at 1,167.72. The Nasdaq Composite Index dropped 16.48 points, or 0.68 per cent, to close at 2,398.76.

The Portugal credit rating downgrade drove the dollar up against the euro, which in turn pushed down prices of commodities denominated in the greenback. US crude oil futures for May lost 1.6 per cent, or $1.30, to settle at $80.61 per barrel.

Chevron was one of the top drags on the Dow, off 1.1 per cent at $73.93.

Oil prices also declined after data showed US crude inventories rose nearly five times more than expected last week, a bearish sign for demand.

Limiting the Dow’s decline was Bank of America, the index’s top percentage gainer after it said it plans to offer about $3bn in loan forgiveness to about 45,000 troubled homeowners. The move is an effort to prevent foreclosures when home values drop sharply below the amount owed.

The stock of Bank of America, the largest US bank with slightly more than $2 trillion in assets, rose 2.6 per cent to $17.57 on the New York Stock Exchange. The biggest drag on the Nasdaq was Genzyme, which fell 6.4 per cent to $55.33 after it said the US Food and Drug Administration will take enforcement action following problems at one of its plants. Genzyme makes drugs to treat rare and chronic diseases.