* Euro falters further on Moody's Ireland credit cut
* U.S. Treasuries find interest as euro debt tumbles
* European banks take a hit, weigh on stock markets
(Updates with European markets' close)
By Alina Selyukh
NEW YORK, Dec 17 (Reuters) - The euro extended losses
against the dollar and global stocks dropped on Friday, weighed
by renewed concerns over euro zone debt after a multi-notch
downgrade of Ireland's credit rating.
After Moody's slashed Ireland's rating by five notches and
warned further downgrades could follow [],
investors curbed their appetite for risk-taking and edged back
into U.S. Treasuries and German bunds.
Moody's move on Ireland followed Fitch's downgrade last
week cutting Ireland's credit level by three notches. Earlier
this week, Moody's placed Spain and Greece on a review for
possible downgrades.
"While the Moody's downgrade of Ireland isn't any surprise,
the sheer magnitude of five notches warrants a mention. We
haven't seen anything like this since the Asian crisis," said
Win Thin, senior currency strategist at Brown Brothers Harriman
in New York.
"We foresee ongoing downgrades for peripheral -- and
perhaps even some core -- euro zone countries over the course
of 2011 as the debt ratios are going to get much worse before
they get better," Thin added.
World markets gained little comfort from a European Union
summit, at which leaders agreed to create a permanent financial
safety net from 2013 but provided no new measures to deal with
the immediate crisis.
"Everyone should be troubled with the situation in Europe,
and we don't think this the last of the news," said Matt King,
chief investment officer at Bell Investment Advisors in
Oakland, California, which oversees $400 million in assets.
European banks were under severe selling pressure over
Ireland's debt situation.
In midday New York trade, U.S.-listed shares of Allied
Irish Bank <AIB.N> fell 5.4 percent to $1.22 while Barclays
<BCS.N> dropped 2.2 percent to $16.23. []
The pan-European top shares index, FTSEurofirst 300
<>, closed down 0.46 percent, at 1126.14, dragged by
banks <.FTNMX8350>, which were down 1.49 percent. As one
example, shares of Royal Bank of Scotland <RBS.L> were down
5.73 percent.
The Dow Jones industrial average <> shed 24.07 points,
or 0.21 percent, to 11,475.18, and the Standard & Poor's 500
Index <.SPX> edged down 0.51 points, or 0.04 percent, to
1,242.36. In contrast, the Nasdaq Composite Index <> saw a
boost from technology companies, gaining 8.04 points, or 0.30
percent, to 2,645.35.
Global markets reflected by the MSCI's all-country world
stock index <.MIWD00000PUS> dipped 0.17 percent, while the
Thomson Reuters global stock index <.TRXFLDGLPU> fell 0.28
percent.
EURO PRESSURES MARKETS
The euro sank against the dollar, hitting a two-week low
after a drop below $1.32 triggered automatic sell orders.
After a blip of positive news from better-than-expected
data on German business morale, the euro slid as low as $1.3138
on trading platform EBS <EUR=EBS>, and was last down <EUR=>
0.63 percent at $1.3153.
Bolstered by the weak euro, the dollar <.DXY> rose against
a basket of major currencies by 0.43 percent to 80.523. Against
the Japanese yen, the dollar <JPY=> strengthened 0.11 percent
to 84.13.
With the dollar on stronger ground, gold and oil prices
slipped. In midday trade, crude oil <CLc1> rose 40 cents, or
0.46 percent, to $88.10 per barrel, and spot gold prices <XAU=>
climbing 0.15 percent, to $1371.40.
As investors sought security in the tumultuous market, U.S.
Treasury securities rallied. The benchmark 10-year U.S.
Treasury note <US10YT=RR> was up 12/32 points in price,
yielding 3.3879 percent.
Over the last two weeks, Treasuries have been underselling
on concerns of ballooning deficits, stemming from the extension
of the Bush-tax cut plan. Late Thursday, the U.S. House of
Representatives passed the deal between U.S. President Barack
Obama and Republican leaders to extend expiring tax cuts. The
measure now goes to Obama to sign into law.
Even so, Treasuries attracted interest in the wake of
renewed euro zone debt concerns. "There is a risk that the
sovereign crisis will spread across the Atlantic to the U.S.
... There's already evidence that it's turning to disorderly
unwinding," said David Woo, head of global rates and currencies
at Bank of America-Merrill Lynch.
High up on investors' radar is Ireland, whose debt levels
have quadrupled since late 2007 on the back of a banking sector
meltdown.
Irish 10-year government bond yields <IE10YT=TWEB> were
24.1 basis points higher on the day at 8.682 percent, pushing
the yield spread over German bunds 23 bps wider to 565 bps.
The spread was off its widest levels of the day around 575
bps, with traders citing some small buying from the European
Central Bank, although liquidity was very thin.
Equivalent Portuguese and Spanish spreads also edged wider
as the threat of further credit downgrades in the near future
rattled those investors still active in the market.
(Additional reporting by Emelia Sithole-Matarise, Dominic
Lau, Emily Flitter, Natsuko Waki, Brian Gorman and William
James in London, and Angela Moon, Ryan Vlastelica and Wanfeng
Zhou in New York, Editing by Chizu Nomiyama)
