July 13 (Bloomberg) -- U.S. stock-index futures fell and the euro strengthened versus the dollar after Moody’s Investors Service said the American government may lose the Aaa credit rating it’s held since 1917.
Standard & Poor’s 500 Index futures expiring in September dropped 0.5 percent to 1,306.20 at 6:07 p.m. in New York. The euro rose to $1.4226 from about $1.4167 before the announcement.
Moody’s began its first U.S. review since 1995 as talks to raise the $14.3 trillion debt limit stall, adding to concern political gridlock will lead to a default. Even a temporary default would likely have “large systemic effects” on the economy and Treasury finances by disrupting money funds, the repurchase-agreement market and foreign investor willingness to buy the government’s debt, according to JPMorgan Chase & Co.
“This is somewhat unprecedented,” said Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama. “It just creates all kinds of questions about how do you play it? Nobody thinks they will actually default, but a downgrade could mean maybe higher rates.”
Global equities rallied before the Moody’s announcement after Federal Reserve Chairman Ben S. Bernanke said he’s prepared to provide more stimulus if needed and China’s economic growth beat estimates. The MSCI All-Country World Index of shares in 45 nations advanced 1.1 percent, after slumping 3.4 percent during the previous three days.
The S&P 500 rose 0.3 percent to 1,317.72 as of the close of U.S. exchanges at 4 p.m., before Moody’s said it was reviewing the rating. It pared its gain from 1.4 percent after the Associated Press reported that House Speaker John Boehner said it’s a “crapshoot” whether the federal debt limit will be boosted if an agreement isn’t reached by Aug. 2. AP then updated its story, quoting Boehner as saying “it’s a crapshoot” to determine what would happen if the limit isn’t increased.
“The market took the reported information for what it is worth and traded off sharply on it,” said Philip Orlando, the New York-based chief equity market strategist at Federated Investors Inc., which oversees $354.9 billion.
--With assistance from John Detrixhe in New York. Editors: Nick Baker, Michael Regan
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