GLOBAL MARKETS-Moody's U.S. warning hurts stocks, dollar

Thu Jul 14, 2011 7:09am EDT

* Dollar falls across the board

* Risk aversion pushes gold to record high

* German debt rises on U.S. warning, euro zone woes

By Jeremy Gaunt, European Investment Correspondent

LONDON, July 14 (Reuters) - Rating agency Moody's warning that the U.S. economy's top credit ranking may be in danger weakened world stocks on Thursday, hit the dollar and helped push gold to a record high.

Moody's said late on Wednesday there was an increased possibility the statutory U.S. debt limit would not be raised on a timely basis, leading to a default on U.S. Treasury debt obligations.

The idea of Washington losing its triple-A status was enough to wipe out any residual bounce on stock markets from U.S. Federal Reserve Chairman Ben Bernanke's comments on Wednesday that there could be further stimulus if needed.

World stocks as measured by MSCI fell 0.3 percent while the FTSEurofirst 300 shed more than 1 percent. Japan's Nikkei lost 0.3 percent.

Analysts continue to believe that there will be a last-minute political deal to extend the U.S. debt limit, but the uncertainty is playing into a generally nervous market.

"The U.S. debt situation is annoying. It's politics pure and simple. I guess they'll get out of it in time so no harm will be done," said Koen De Leus, strategist at KBC Securities.

"But it does create additional nervousness on top of all other issues like the uncertainty about U.S. growth in the second half of 2011, inflation problems in emerging countries and the European debt problem."

U.S. stock futures fell around 0.1 percent SPc1, pointing to a weaker open on Wall Street later.

General risk aversion towards debt pushed investors into gold , which hit a nominal record of $1,589.56 an ounce.

"Lacking a really reliable destination, a lot of the funds leaving the bonds market are going into precious metals on the notion that their value will be retained even if policymakers are pressured to go to further extremes to work against contagion," said one gold trader in Singapore.

DOLLAR SUFFERS

Demand for triple-A rated German debt rose after the Moody's U.S. warning. But that was only one factor driving a flight from risk as concern about the euro zone's own problems also grew over delays to policymakers' plans to tackle the region's deepening debt and after Fitch downgraded Greece further into junk territory on Wednesday.

Italy has moved closer to centre stage in Europe's debt crisis over the past week. At an auction on Thursday, Italy had to pay the highest rates in three years to sell almost 5 billion euros of long-term debt, highlighting growing pressure on its public finances .

The euro erased early gains to stand flat at $1.4191 . The U.S. dollar fell 0.2 percent against a basket of currencies , hurt by both Moody's and Bernanke.

"The dollar has digested the news from Moody's but there is still an awful lot of event risk in the coming couple of sessions. It's going to be a bit of a wild ride," said Adam Cole, FX strategist at RBC Capital Markets.

Concerns about the U.S. budget deficit put the brakes on a rally in oil prices, pushing Brent LCOc1 down 20 cents to $118.48 a barrel. (Additional reporting by Nia Williams and Atul Prakash; Editing by John Stonestreet)

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