Stocks sink after S&P issues warning on debt

NEW YORK — Stocks opened sharply lower today after Standard & Poor’s warned that it might lower its rating on U.S. government debt because of mounting budget deficits. More bad news about Europe’s debt crisis also pushed markets lower. The Dow Jones industrial average fell 240 points, or 1.96 percent, to 12,100 in early trading. European markets lost even more. France’s CAC-40 was down 2.5 percent and Germany’s DAX lost 2.3 percent. S&P reaffirmed the U.S. government credit rating at AAA but said that concerns over “very large budget deficits and rising government indebtedness” led the agency to lower its outlook on the long-term rating to “negative.” That means S&P could downgrade the rating in the future. If that were to happen, the U.S. government would have to pay more to borrow money by issuing debt in public markets. Kim Rupert, managing director of global fixed income analysis at Action Economics, calls the S&P’s move a “warning sign” that the U.S. needs to get its deficit under control. “The worry is that we’re going to be Greece in a couple of years.” The Standard & Poor’s 500 fell 24, or 1.9 percent. The Nasdaq composite fell 57, or 2 percent. Treasury prices fell after the S&P warning came out but soon stabilized. The yield on the 10-year Treasury note, which rises when the note’s price falls, jumped to 3.47 percent after the S&P’s warning came out. It had been trading at 3.38 percent just before. The euro fell against the dollar as Europe’s debt problems spread. Spain had to pay a much higher interest rate on new debt; there was speculation of a possible default by Greece and a nationalist party in Finland made big gains in an election Sunday. The euro fell 1.4 percent against the dollar to $1.4126. Citigroup Inc. held steady after reporting earnings that came in just above analysts’ expectations. The stock was unchanged in early trading. The bank’s income fell 32 percent but it was able to set aside less money to cover losses from loan defaults as more customers made payments on time. Several other big banks are due to report earnings this week. Traders are keen to determine whether banks are lending more. The upcoming reports from Goldman Sachs Group Inc. and Wells Fargo & Co. are “crucial for the markets,” says Quincy Krosby, a market strategist for Prudential Financial. Industrial supply company W.W. Grainger rose the most of any stock in the S&P 500. The company rose 2.8 percent after reporting that its first-quarter income soared because of a successful expansion into foreign markets. TD Ameritrade, Eli Lilly and Halliburton all reported earnings that beat Wall Street’s expectations before the opening bell, but global events weighed heavily on the market. Egypt’s benchmark stock index fell more than 3 percent, pulled lower by an investigation into the head of a Mideast private equity firm. The index has fallen more than 30 percent this year in the wake of the ouster of former president Hosni Mubarak. Oil prices fell slightly but remain high, at $108 a barrel. Japan’s nuclear crisis remains a worry after robots sent into two flooded buildings in that country’s crippled nuclear power plant detected unusually high levels of radiation.