Credit downgrade warning for 15 eurozone countries

Standard & Poor's confirmed Monday it is examining the credit rating of 15 eurozone countries for a possible downgrade as the continent's debt crisis lingers.
Markets, including the New York Stock Exchange, gave back some of their gains Monday on reports of a coming credit warning on European economices. (Spencer Platt/Getty )

Standard & Poor's confirmed Monday it is examining the long- and short-term credit ratings of 15 eurozone countries for a possible downgrade as the continent's debt crisis lingers.

The bond ratings agency made its announcement after markets closed, but earlier leaked reports led stock markets to pare their gains.

S&P warned it was placing the countries on "creditwatch negative," implying a 50 per cent chance of a ratings downgrade within 90 days.

S&P cited a growing reluctance of banks to lend, rising bond yields, continuing disagreements among European leaders on how the resolve the region’s debt crisis, high government and household debt and the rising risk of recession.

The only two members of the 17-member eurozone not put on credit watch were Cyprus, which was already under review but whose short-term ratings were added to the review list, and Greece.

Greece already has a rating that suggests, in S&P's words, a "relatively high near-term probability of default."

The List:

  • Long-term ratings: Austria, Belgium, Finland, France, Germany, Luxembourg and the Netherlands.
  • Long- and short-term: Estonia, Ireland, Italy, Malta, Portugal, Slovak Republic, Slovenia and Spain.
  • Short-term: Cyprus

Earlier, stock markets traded higher Monday and Italian bond yields fell as investors decided that a summit of European leaders on Friday will make headway towards resolving Europe’s debt crisis.

The S&P/TSX composite index ended higher by 44.24 points at 12,119.33, after being up by almost 200 points at one point during the session.

In New York, the Dow Jones industrial average, which earlier had also been up by close to 200 points,  closed at 12,097.83, up 78.41.

The Standard & Poor's 500 index rose 12.80 to 1,257.08 and the Nasdaq composite index gained 28.83 at 2,655.76

The Canadian dollar was up 0.15 of a cent to 98.35 cents US.

The January crude contract on the New York Mercantile Exchange gained three cents to $100.99 US a barrel.

Stocks rose on European progress

Earlier, investors were cheered as French President Nicolas Sarkozy and German Chancellor Angela Merkel ended their meeting in Paris Monday with a call for a new European Union treaty that would impose greater fiscal discipline on member countries.

The leaders' statements did not amount to a long-term solution, but investors are eager to buy on any hint of good news because they have been earning meagre returns from relatively low-risk investments such as Treasurys and CDs, an interest-based investment similar to a GIC, said Brian Gendreau, investment strategist with Cetera Financial Group.

"There's pent-up demand, and people will use any excuse to get back in, thinking there's been too much pessimism," Gendreau said.

A commitment to tighter co-ordination could open the way for further emergency aid from the European Central Bank, the International Monetary Fund or some combination.

Yields on Italian bonds dove to their lowest level in a month, suggesting traders believe that Italy is far less likely to default.

The yield on the 10-year Italian bond plunged half a percentage point to 5.97 per cent. It rose above seven per cent last month, a level at which other nations were forced to take bailouts.

Analysts say bailing out Italy would be too costly and would hurt the credit standing of German and France, which have the strongest economies in the euro group.

With files from The Associated Press