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US shocked after S&P downgrades rating from AAA to AA+

The downgrading of US' credit rating by Standard & Poor's from 'AAA' to 'AA+' raises concerns that investors will lose confidence in its economy and it can affect the financial system worldwide.

BT Online Bureau | August 10, 2011 | Updated 11:29 IST

The US has expressed shock over the downgrading of its credit rating by Standard & Poor's from 'AAA' to 'AA+', fearing speculation that it can affect the financial system worldwide.

For the first time since the US won the top ranking in 1917, the rating agency Standard & Poor's downgraded country's sovereign credit rating. The move raises concerns that investors will lose confidence in its economy.

However, other prominent credit rating agencies - Moody's Investors Service and Fitch Ratings - affirmed their AAA credit ratings even as President Barack Obama signed a bill that ended the debt-ceiling impasse that pushed the Treasury to the edge of default. Moody's and Fitch although hinted towards downgrading if lawmakers fail to enact debt reduction measures and the economy weakens.

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"The action by S&P reaffirms the need for a balanced approach to deficit reduction that combines spending cuts with revenue-raising measures like closing taxpayer-funded giveaways to billionaires, oil companies and corporate jet owners," Senate Majority Leader Harry Reid said.

"This makes the work of the joint committee all the more important, and shows why leaders should appoint members who will approach the committee's work with an open mind - instead of hardliners who have already ruled out the balanced approach that the markets and rating agencies like S&P are demanding," said Reid, who was among the first lawmakers to react on the unprecedented decision of the S&P.

The Wall Street Journal termed it as shaking of the global financial system.

"A cornerstone of the global financial system was shaken on Friday when officials at ratings firm Standard & Poor's said US Treasury debt no longer deserved to be considered among the safest investments in the world," it said.

"The downgrade will force traders and investors to reconsider in real time what has been an elemental assumption of modern finance," the Journal reported.

The Washington Post said: "The downgrade will push the global financial markets into unchartered territory after a volatile week fueled by concerns over the European debt crisis and the slowdown in the US economy.

"Since July 14, when Standard & Poor's warned it could downgrade the US, analysts have struggled to determine how such a move could affect the financial landscape, given how Treasury's permeate the machinery of Wall Street and the economy."

The US stock markets closed on a flat note on Friday, after it witnessed wild swings, trading in a range of 400 points during the day.

With PTI inputs

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