World shares tumble on Portugal downgrade fears

Stocks tumbled in both Europe and the US after Moody's Investors Service said it might cut Portugal's credit rating for the first time, a sign that contagion from the Greek crisis was spreading.

Overnight Moody's placed its Aa2 rating on Portugal under review for a possible downgrade, a process that would take up to three months. Portugal has held the third-highest Moody's investment grade since 1998.

"Today's rating action reflects the recent deterioration of Portugal's public finances as well as the economy's long-term growth challenges," Moody's said.

Portuguese assets have already been hurt as Standard & Poor's last week downgraded Portugal by two notches to A-.

At the close, the Dow Jones industrials are down 60 at 10,867. The Dow had been down 112 earlier in the day. Its two-day loss totals 285 points.

The Standard & Poor's 500 index is down 8 at 1,166. The Nasdaq composite index is down 22 at 2,402.

Four stocks fell for every one that rose on the New York Stock Exchange.

"The primary concern is the contagion risk associated with Greece and some of the other problematic nations in Europe and the follow-on effects on long-term economic growth. We may be in for more of a rough and volatile period," Jason Pride, director of investment strategy at Glenmede in Philadelphia, told Bloomberg News.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street's 'fear gauge' jumped 8.98 per cent to 25.98.

The Stoxx Europe 600 Index slid 1 per cent to 250.55.

In the U.K., the FTSE 100 declined 1.28 per cent, Germany's DAX fell 0.81 per cent and France's CAC 40 dropped 1.44 per cent.

Greece's ASE Index tumbled 3.9 per cent to the lowest level since March 2009 as protests against government austerity measures left at least three people dead in Athens.

Among the most actives were Greece's EFG Eurobank Ergasias , Spain's Banco Popular Espanol as well as Vinci , Meda and BP. Air France-KLM Group plunged 5.5 per cent as a cloud of volcanic ash from Iceland closed airports in the UK and Ireland.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.99 per cent to 84.12.

In afternoon trade in New York, the euro was last down 0.9 per cent at US$1.2858. Over the last three days, it has lost more than 3 per cent against the greenback, its worst performance since shedding 3.9 per cent over a similar period in January 2009.

The euro fell 1.5 per cent to 120.97 yen and hit its lowest level against sterling since August. The US dollar dipped 0.6 per cent to 94.03 yen

Ahead of Thursday's national election, sterling declined to a five-week low against the US dollar at US$1.5068

The US Treasury 10-year yield fell 3 basis points to 3.56 per cent at 1:47pm in New York, according to BGCantor Market Data. It touched 3.49 per cent, the lowest level since December 18.

Portugal's risk premium rose 41 basis points to 294 today after climbing as high as 299 basis points on April 28.

"We have sent a signal that it is possible, and I have to say, statistically, there is a very strong likelihood that if we put it on a review for downgrade then we follow through with a downgrade," Anthony Thomas, vice president at Moody's Sovereign Risk Group, told Reuters.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, fell 1.36 per cent to 267.92.

Spot gold was bid at US$1,173.25 an ounce at 1532 GMT against US$1,170.65 late in New York on Tuesday. US gold futures for June delivery on the COMEX division of the New York Mercantile Exchange were at US$1,173.80 an ounce.

Platinum dropped to US$1,618.50 and was later at US$1,642.50 an ounce versus US$1,668.50. Silver slid to US$17.05.

Oil slid to a one-month month-low on Wednesday. Prices dropped as low as US$79.15, or 9 per cent below Monday's 19-month high of US$87.15.

US crude for June delivery was down US$2.10 at US$80.64 a barrel by 1458 GMT. Prices are still around double the level they were at the start of 2009, according to Reuters data. London Brent crude was down US$2.28 at US$83.39 a barrel.

WITH AP