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What spooked the markets and reasons for sell-off

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Why US markets fell on Wednesday?
Variety of worries have clouded the markets in recent weeks, but on Wednesday they singled out all fears.

The focus was on France, with speculation that it could follow the US and become the next country to lose its AAA sovereign rating.

 

A finance ministry official in France conveyed the message on Wednesday to calm the people that rumours France will be taken down a notch are "totally unfounded and the three agencies – Standard & Poor's, Fitch and Moody's – have confirmed there is no risk of a downgrade."

Although rating agencies came out and reaffirmed France"s standing, French banks are looking particularly vulnerable.

Shares of the second largest bank of France, Societe Generale slashed more than 20% on the ratings speculation and concern over its exposure to Greek debt amid renewed concern about Athen's implementation of a rescue plan.

The eurozone crisis is fuelled by fears that Spain or Italy might default on their debt and possibly spark a break-up of the currency shared by 17 countries.

If European governments default on their bonds and it hurts European banks, that could start a chain reaction in the United States. That"s because large U.S. banks own European bank debt.

American bank stocks took hits because of investors fretted that the debt problems overseas might reach the United States.

On Tuesday, the Federal Reserve said it planned to keep interest rates ultra-low for two more years since it sees almost no chance that the U.S. economy will improve substantially by 2013, but the sequence of speculations, rumours and worries were enough to hit markets hard again.

 

GoodReturns.in

Read more about: economy united states stock europe
Story first published: Thursday, August 11, 2011, 10:51 [IST]
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