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Financial Focus

Standard & Poor’s Ratings Services cut Italy’s credit rating by one level yesterday on mounting government debt and weakening growth prospects. The rating was lowered to A from A+, with a negative outlook. Italy joins Spain, Ireland, Portugal, Cyprus and Greece in having their credit ratings downgraded this year.

GREECE will hold another call today with its main creditors after a “productive” round of talks in a teleconference IMF and EU officials yesterday aimed at staving off default, the Athens-based finance ministry said in an e-mailed statement. However, Finance Minister Venizelos expects the country’s economy to shrink by about 5% this year, worse than the June estimate of 3.8% from the EU and IMF, and a deeper contraction than in the past two years.

THE US Federal Reserve will begin a two-day meeting today and is poised to increase downward pressure on longer-term interest rates this week in a bid to accelerate a sputtering US recovery. Ben Bernanke, the central bank’s chairman, told economists that policy makers have measures at hand and are “prepared to employ these tools as appropriate.”

MARKETS:

European shares are expected to fall further today, with Standard & Poor’s move to cut Italy’s rating stoking concerns of contagion in the debt-stricken Eurozone at a time when investors are jittery over the possibility of a Greek debt default.

US STOCK futures declined through the night, indicating equities will slump for a straight second day, after a S&P downgrade of Italy’s credit rating reinforced concern Europe’s debt crisis is spreading. Equities slumped yesterday, halting a five-day rally for the S&P 500, amid concern Greece will fail to qualify for more financial aid needed to avoid default.

CHINA stocks rose, with the Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, climbing from a 14-month low, as investors speculated recent declines were overdone. The Shanghai index has slumped 13% this year, extending last year’s 14% plunge, as the government increased measures to cool inflation that’s at an almost three-year high.

CURRENCIES:

The EURO fell for a third day against the dollar and yen after Standard & Poor’s cut Italy’s credit rating, adding to concern Europe’s worsening debt crisis will raise borrowing costs for countries in the region. THE DOLLAR gained versus most major peers before the Federal Reserve’s policy meeting today, and as investors sought to diversify away from declining equities and commodities.

ENERGY:

OIL for October delivery rose 0.2% after dropping 0.7%in New York. Futures are still trading near a three-week low after losing 4.1% over the previous two days.

COMMODITIES:

GOLD rebounded from its biggest drop in a week on concern that the European debt crisis is worsening, spurring demand for haven assets including bullion. COPPER was steady around $8,359 a tonne, after tumbling 3.8% on Monday, its biggest one-day loss since March, to a nine-month low.

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