U.S. Stock Futures, Oil Plunge on U.S. Debt-Rating Downgrade; Gold Surges (Rita Nazareth and Nikolaj Gammeltoft)

Aug 7, 2011 (Bloomberg) -- Equity futures sank, signaling the market may extend its worst slump since the bull market began in 2009, while oil slid as the loss of the U.S.’s top credit rating fueled concern the economic slowdown will worsen. Gold rallied to a record and the Swiss franc climbed to an all-time high against the dollar.

Standard & Poor’s 500 Index futures lost 2 percent to 1,173.80 at 8:49 a.m. in Tokyo following a two-week slump that dragged the gauge down 11 percent and erased its 2011 gain. The dollar dropped to as low as 74.85 Swiss centimes before trading at 76.23. Oil sank 2.7 percent to $84.60 a barrel in electronic trading. Gold rose as much as 1.8 percent to $1,693.75 an ounce.

A rebound in the S&P 500 faded on Aug. 5 even before S&P announced the one-level reduction to AA+, as concern grew the downgrade’s ripple effects will drag on markets already reeling from a slowdown in economic indicators. Futures pared losses after Group of Seven nations said they will take every action necessary to stabilize financial markets. Members will inject liquidity as needed and act against disorderly currency moves if necessary, Japanese Finance Minister Yoshihiko Noda said.

“Investors should be cautiously positioned,” Mohamed A. El-Erian, the chief executive officer at Pacific Investment Management Co. inNewport Beach, California, wrote in an e-mail Aug. 6. Pimco is the world’s largest bond-fund manager. “The downgrade will be a further headwind to growth,” he wrote. “The once-unthinkable loss of the AAA rating will constitute a further hit to already fragile business and consumer confidence.”

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