European shares bounced back today but worries still persisted after Standard and Poor's cut Spain's credit rating today, underlining the challenges facing Europe's big powers as they prepare to meet G20 counterparts over the euro zone debt crisis.
The rating agency, whose move mirrored last week's downgrade of Spain by Fitch, cited Spain's high unemployment, tightening credit and high private-sector debt among reasons for cutting the nation's long-term rating to AA- from AA.
Shares were boosted by better-than-expected results from Google and forecast beating earnings news from Syngenta.
The euro initially fell following the announcement, dipping in Asian trade to $1.3753 , having shed around a third of cent. But it regained some ground over the morning's session, advancing against the dollar and strengthening 0.2 per cent to $1.3807 as of 9.37am in London.
S&P announced the downgrade as finance ministers and central bank chiefs from the world's 20 biggest economies were due to meet later today in Paris to find an urgent and convincing solution to the deepening debt crisis.
"Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain's growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain's main trading partners," S&P said.
It also noted the "incomplete state" of labour market reform and the likelihood of further asset deterioration for Spain's banks, and it downgraded its forecast for Spanish economic growth in 2012 to about 1 per cent.
In February, S&P had forecast 1.5 per cent growth for 2012.
Like Fitch, which also now rates Spain at AA-, S&P signalled further possible downgrades for Spain, saying there was still a risk the euro zone's fourth-largest economy could slip into recession next year, with a 0.5 per cent contraction.
"We could lower the ratings again if, consistent with our downside scenario, the economy contracts in 2012, Spain's fiscal position significantly deviates from the government's budgetary targets, or additional labour market and other growth-enhancing reforms are delayed," S&P said.
Finance chiefs from outside the euro zone are expected to speak frankly when they meet their European counterparts at today's G20 meeting, given impatience growing over the crisis and its implications for the rest of the world.
Canadian finance minister Jim Flaherty set the tone late yesterday, telling reporters before leaving Ottawa that euro zone actions were short of what was needed.
Yesterday, Fitch cut credit ratings or signalled possible downgrades for several major European banks.
It downgraded UBS, Lloyd's Banking and Royal Bank of Scotland . It also placed Barclays Bank , BNP Paribas, Credit Suisse, Deutsche Bank and Societe Generale on watch negative.
Reuters
