US Downgrade Leaves Markets Facing Turmoil

Global financial markets could face further turmoil in the wake of the US credit rating downgrade.

Credit ratings agency Standard and Poor's said early on Saturday morning they had downgraded the country from its top AAA rating to AA+.

(Sky News) - The loss of the rating could reignite panic on the markets as traders worry that the world's biggest economy may be leading the way back into recession.

Markets around the globe suffered huge falls this week, but the US Dow Jones ended higher on Friday after better-than-expected jobs growth figures.

In London, the FTSE 100 index of leading UK shares closed the day at 5246.99, down 146 points or 2.71%.

More than £148bn has been wiped off the FTSE's value since trading opened on Monday - a plunge of 568.2 points or 10.15% - caused by the eurozone debt crisis and fears the economy is stalling.

FTSE 100 1-Week Chart

In other European markets, Germany's DAX ended Friday down 2.8% and the CAC in France fell 1.2%. Italy was 1.7% lower and Spain dipped by 0.2%.

But in the US, the Dow Jones Industrial Average rose 0.54% at the close following volatile trading. The broader S&P 500 dipped 0.06%, while the technology-based Nasdaq Composite fell 0.94%.

For the week - the worst for American markets in more than two years - the Dow fell by a total of 5.8%, the S&P 500 was down 7.2% and the Nasdaq was off 8.1%.

The Nikkei index on the Tokyo Stock Exchange has slumped by 5.4% since Monday.

Screen at the London Stock Exchange shows share falls

There have been worries this week that Italy and Spain may need a bailout.

Italy has tried to reassure investors by pledging to work for a constitutional amendment requiring the government to balance its budget in 2013, a year earlier than planned.

Spain says its prime minister Jose Luis Zapatero and French President Nicolas Sarkozy have agreed a need for co-ordination from governments to react to global economic fears.

Meanwhile, David Cameron has talked to German Chancellor Angela Merkel on the phone and they agreed to closely monitor the current instability in worldwide stock markets.

And US President Barack Obama has spoken separately to Mr Sarkozy and Ms Merkel on the eurozone crisis.

Investors have delivered votes of no confidence in the global economic recovery for five days.

Japanese and American brokers react to the troubled markets on Friday

News that 117,000 new jobs were created in the US last month helped bring some comfort to investors at lunchtime - before despair then resumed in markets amid concerns of slower global growth.

US analysts said the sell-off was driven by investor fears over the European debt crisis and anxiety about domestic issues like slow growth, high unemployment and falling consumer confidence and spending.

IG Index analyst David Jones said: "There is a growing sense that there is real confusion over how to deal with underlying problems.

Many are pointing out that the markets are merely playing catch-up - that they were previously too highly valued and looked overly optimistic in relation to reality.

Sky's business correspondent Dharshini David

"Namely the slowing pace of recovery, threat of recession and eurozone contagion spreading.

"On 7 July, only 29 days ago, the FTSE 100 was etching just north of the 6,000-point mark. This weekend, analysts, investors and traders will all be asking themselves what has happened since early July."

Prices of gold, which is traditionally seen as a safe haven in times of economic crisis, held firm as the dollar fell against the euro after the US jobs boost.

But Kingsview Financial head trader and strategist Matt Zeman said: "Even gold is susceptible. People are pretty much getting out of everything, except cash and bonds."

Investor confidence was hit on Thursday when EU president Jose Manuel Barroso wrote a letter to eurozone members, warning that the debt crisis was spreading.