Stocks and commodities tumble as Greek credit rating cut to junk

US stocks tumbled yesterday and the dollar and Treasuries rose as credit-rating downgrades of Greece and Portugal fuelled concern that debt-laden nations are moving closer to default.

Greek, Portuguese and Irish bonds sank. In late trading, the Dow Jones had fallen nearly 2% to 10,991.99. The Nasdaq was down over 2.04% at 2,471.47. Oil sank 1.6%, copper lost 4.4% and aluminum plunged 7%.

The Greek finance minister said the eurozone-IMF loan must be delivered by mid-May, when the country must find €9 billion to pay off maturing debts.

And Greece’s credit rating was cut to junk-bond status by Standard and Poor’s, the first time that has happened to a eurozone member.

Greece was lowered to BB+ from BBB+ by S&P. The Greek downgrading came minutes after the rating agency reduced Portugal by two steps to A- from A+. Senior EU figures moved to win over support in Germany for the Greek bailout as fears spread that Portugal could be next.

The long-drawn out procedure over the bailout led to major selling of Greek and Portuguese shares, with some analysts saying the Greek financial market had descended into chaos.

Economics Commissioner Ollie Rehn told his fellow commissioners that work on the three-year programme to reduce Greece’s deficit was going well and should be concluded early in May.

None of the €45 billion loan package can be paid out until this is finalised and approved by EU leaders.

Greek finance minister George Papaconstantinou ratcheted up the pressure by warning: “The crucial deadline is May 19, when a Greek government bond worth €9bn matures.

“Given our inability to access the markets by then the procedure must be complete, agreed, signed and the release of funds initiated from the IMF and our European peers,” he told fellow Greek deputies.

He added the political situation in EU countries was not helping: “There are frequently differing voices and there is a lack of clarity.”

German public opinion, gaining significant influence ahead of regional elections on May 9 that are vital for Chancellor Angela Merkel’s party, is vehemently against helping Greece.

Commission vice president Vivian Reding is visiting Germany in an attempt to boost European solidarity, according to her spokesperson. “She sympathises with public opinion, and this is a hurdle that has to be faced by Dr Merkel where two thirds of the people are sceptical.

“There are 16 eurozone countries and we are in this together and this is the time to act. We cannot delay,” he said, speaking on behalf of the Commissioner for Justice and Citizenship.

The European Central Bank poured cold water on suggestions that Greek banks could run out of the collateral they use to get money from the ECB. A spokesperson said since Greece is just 2% of the euro area economy and bonds make up 40% on average of collateral, this was irrelevant given the integration of banks and the euro money market.

ECB outgoing vice president Lucas Papademos said he did not expect Greece’s sovereign debt to cause any second crisis for banks.