* Moody's downgrades Portugal rating to junk
* Oil rallies after Barclays raises price forecasts
* Safe-haven Swiss franc, Treasuries advance
(Updates with market's close, adds comment, details)
By Wanfeng Zhou
NEW YORK, July 5 World stocks slipped from
five-week highs on Tuesday and the euro tumbled broadly on
concerns about the global economic outlook and after a major
ratings agency downgraded Portugal to junk status.
Oil prices jumped about 2 percent after Barclays Capital
raised its 2012 forecasts for crude oil, leading a broad rally
in commodity prices as bargain-hunters bought into oversold
Media reports about a possible rate rise in China and a
Moody's report saying the scale of problem loans at local
governments in China may be much bigger than previously thought
dented demand for risky assets. For more, see [nL3E7I507Y]
Adding to investor worries, a survey showed the euro zone's
dominant service sector slowed for a third straight month in
June, while Moody's Investors Service cut Portugal's credit
rating by four levels to Ba2, two notches into junk territory.
Moody's said there is great risk the country will need a
second round of official financing before it can return to
capital markets. The news added to lingering worries about
Greece even as Athens narrowly averted a near-term default.
"The Portugal downgrade clearly is negative because as the
downgrades spread from the weakest to the weaker, the market is
now asking, 'If Portugal is downgraded, will Spain be next?'"
said Cary Leahey, economist and managing director at Decision
Economics in New York. "It's symptomatic of the contagion
effects in the eurozone."
World stocks as measured by the MSCI world equity index
.MIWD00000PUS fell 0.3 percent after earlier hitting their
highest since June 1. The index has risen almost 5 percent
On Wall Street, shares ended mostly lower. The Dow Jones
industrial average .DJI fell 12.90 points, or 0.10 percent,
to 12,569.87. The Standard & Poor's 500 Index .SPX was down
1.79 points, or 0.13 percent, at 1,337.88. The Nasdaq Composite
Index .IXIC , however, gained 9.74 points, or 0.35 percent,
to 2,825.77, helped by strength in Netflix shares (NFLX.O).
Investors were cautious about taking on more risk after the
recent run-up in equities, when world stocks posted their best
weekly gain in a year last week. U.S. stocks had their best
week in two years last week, with the S&P up 5.6 percent.
Volume is expected to remain low in the holiday-shortened
week, with all eyes on Friday's U.S. monthly jobs data. Markets
were closed on Monday for the U.S. Independence Day holiday.
European stocks .FTEU3 ended slightly higher at 1,122.23
points. Emerging market stocks .MSCIEF fell 0.3 percent.
The euro fell 0.8 percent to $1.4419 EUR=EBS, after
hitting a session low of $1.4395 on Reuters data, snapping six
straight days of gains. It also tumbled 1.6 percent to 1.2128
Swiss francs EURCHF=EBS.
The downgrade on Portugal followed another setback for
Greece on Monday when ratings agency Standard & Poor's warned
it would treat a rollover of privately held Greek debt, now
being discussed, as a selective default. [ID:nL6E7I408N]
Losses in the euro were limited by expectations the
European Central Bank would raise rates to 1.5 percent on
Thursday and likely signal more tightening.
OIL, SAFE HAVENS SHINE
ICE Brent futures for August LCOc1 rose to a high of
$114.44 a barrel, the highest since June 22, before settling at
$113.61, gaining $2.22, or 1.99 percent. U.S. crude CLc1
ended up $1.95, or 2.05 percent, at $96.89 per barrel.
Barclays Capital raised its 2012 forecast for Brent by $10,
to $115 per barrel, and upgraded its 2012 forecast for U.S.
crude by $4, to $110. The bank said it expects a further
reduction in global spare capacity in 2012, together with a
significant intensification of the geopolitical background.
Commodities rallied broadly in spite of a stronger dollar
and weaker stocks, extending their rebound from a nearly
six-month low as investors bet the sell-off in the second
quarter -- when the Reuters-Jefferies CRB index .CRB dropped
6 percent, the biggest fall since late 2008 -- was overdone.
Spot gold XAU= was bid at $1,514.66 an ounce, against
$1,495.54 late in New York on Monday.
"We may be seeing some running to commodities as a safe
haven. When in doubt about all the currencies, move into
commodities. And the sector was a little oversold coming out of
the holiday," said Phil Flynn, analyst at PFGBest Research in
Jitters over euro zone peripheral economies pushed
safe-haven U.S. government debt prices higher and helped put on
the back burner, for now, concerns over the risk of a possible
U.S. default. The benchmark 10-year note US10YT=RR was up
14/32 for a yield of 3.13 percent.
(Additional reporting by Ellen Freilich, Nick Olivari, Edward
Krudy, Richard Leong, Gene Ramos and Robert Gibbons; Editing by