AFP/London
European stocks mostly rose in nervous trading yesterday as investors brushed aside news of a credit rating downgrade for Italy to focus on an upcoming meeting of the US Federal Reserve. The euro clawed back earlier losses against the dollar after the overnight downgrade of Italian sovereign debt by ratings agency Standard & Poor’s and as Greece, struggling to avert a default, awaited more talks with international auditors. Analysts said markets had expected a downgrade, although from ratings agency Moody’s rather than S&P. London’s FTSE 100 index was up 0.78% to 5,300.81 points in afternoon trade and Frankfurt’s DAX jumped 1.62% to 5,503.69 points. Despite the downgrade of Italy, Milan advanced 0.68%. Madrid was up 0.19%. The exception was Paris, where the CAC 40 slipped 0.1% to 2,978.58 points with banks Societe Genrale and BNP Paribas once again falling after a report that industrial giant Siemens had pulled out cash from a French bank to deposit it more safely at the European Central Bank. On Wall Street, the Dow Jones Industrial Average rose 0.27% to 11,432.19 in the first five minutes of trading. The broader S&P 500 advanced 0.35% to 1,208.32, while the tech-heavy Nasdaq Composite gained 0.33% to 2,621.33. In afternoon New York trade, after briefly dipping below $1.36, the European single currency stood at $1.3721 from $1.3692 late on Monday. “Financial markets are acting fairly robustly across most asset classes despite the increasingly negative news flow, suggesting traders are yet to switch into full risk-off mode,” said ETX Capital senior trader Manoj Ladwa. “Within the first hour of trading, equities ... moved into the black having started off the day in negative territory, as investors opt for stocks with more defensive qualities. “But any rally could be short-lived as the market waits in anticipation for the Federal Reserve to show its hand.” Markets were waiting to see if the Federal Open Market Committee, the key policy body of the US Federal Reserve, takes action to boost the US ailing economy. However due to internal divisions, the FOMC was unlikely to take the drastic step of launching a third round of quantitative easing – effectively printing dollars to inject liquidity into the economy. Standard & Poor’s meanwhile on Monday cut its Italian debt rating to “A/A-1” from a “A+/A-1+” grade because of “Italy’s weakening economic growth prospects.” It added that Italy’s weak governing coalition would “limit the government’s ability to respond decisively” to events. Italy’s problems come as eurozone peer Greece was in crisis talks with its EU-IMF creditors for a second day. Unless Athens can come to an arrangement with auditors from the European Union and International Monetary fund, its reserves to pay pensions and wages will run out in October. Also yesterday, Greece raised €1.625bn, more than original target of €1.25bn, in a sale of three-month treasury bills with the borrowing price stable at 4.56%. “S&P has thrown another spanner in the works of the European sovereign crisis by downgrading Italian debt by one notch to A late last night,” said economist Dermot O’Leary at Goodbody Stockbrokers in Dublin. “With agreement on Greece’s next tranche of aid from the IMF/EU still not reached, European leaders could certainly have done without another destabilising influence. Unfortunately, S&P has given them just that.” The IMF yesterday downgraded its forecast for world growth and said that if the eurozone debt crisis worsened, global financial stability could be at risk.