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8B Daily News – Tuesday, August 9, 2011 STOCKS (Continued from page 1A) economy means that consumers and businesses will buy less gasoline. The turmoil in the U.S. markets was the end of a daylong rout that swept the world. Stocks lost 4 percent in South Korea and 2 percent in Japan, then 5 percent in Germany and 4 percent in France. In the U.S., stocks fell even though Moody’s, anoth- er major credit rating agency, stood by its top rating of Aaa for the United States. It said it could downgrade the U.S. if it did not cut its deficit, ‘‘but it is early to conclude that such measures will not be forthcoming.’’ Financial markets were not comforted by an after- noon statement by President Barack Obama, who said Washington needs more ‘‘common sense and compro- mise’’ to tame its debt. ‘‘Markets will rise and fall,’’ he said. ‘‘But this is the United States of America. No matter what some agency may say, we’ve always been and always will be a triple- A country.’’ Across the Atlantic, policymakers struggled to con- tain a debt crisis of their own. The threat of default has spread from relatively small countries like Greece and Portugal to bigger ones — Italy and Spain. If either of those countries failed to meet their debt payments, Italian and Spanish banks would absorb losses on their holdings of their countries’ government bonds. Then the pain could spread outward — to foreign banks that made loans to Spanish or Italian banks and beyond. The European Central Bank stepped in Monday, buying billions of euros’ worth of Italian and Spanish bonds to drive down dangerously high interest rates. But the move does nothing to address the underlying problem: huge Italian and Spanish debts that could require a bailout and strain the resources of the Euro- pean Union. S&P added to the anxieties Friday night by down- grading long-term U.S. government debt — Treasury securities with maturities of more than a year — by one notch, from AAA to AA+. Then on Monday, it downgraded the credit ratings of GROWNEY MOTORS 530-527-1034 Wall Street Fannie Mae, Freddie Mac and other government agen- cies that rely on the creditworthiness of the federal government. In withdrawing the top credit rating, S&P blamed political paralysis in Washington. Republicans and Democrats agree on the need to reduce massive annual budget deficits that have left the United States holding $14.3 trillion in debt. But they can’t agree how to do it. Republicans refuse to raise tax revenues, and Democ- rats resist cuts to social programs such as Medicare and Social Security. But in their first opportunity to buy long-term Trea- surys after S&P declared them riskier, investors paid a premium for them. The yield on 10-year Treasury bonds fell to 2.34 percent Monday from 2.56 percent Friday as investors bid prices up. ‘‘What you’re seeing amply demonstrated today is that, should there be any question about the stability of the global economic backdrop, the U.S. dollar rises in value, and Treasurys are still the pre-eminent flight-to- quality security in the world markets,’’ said Robert Tipp, chief investment strategist with Prudential Fixed Income. The drop in Treasury yields signals that investors are more worried about slowing growth than they are about the credit risk posed by the U.S. government. Investors signaled Monday that nothing has shaken their confi- dence that the U.S. will pay its creditors. Many investors flee to Treasurys when there are signs economic growth is deteriorating. Steven Major, a strategist at HSBC Bank, said 10-year yields could drop as low as 2 percent if the U.S. stumbles back into recession. S&P’s decision does pose one risk, said Jan Hatzius, Goldman Sachs’ chief economist: It could force the U.S. government to cut spending and reduce its budget deficit faster than it would otherwise. Hatzius is already forecasting that cuts in govern- ment spending could reduce U.S. growth by 1 percent- age point in 2012. Overall, the U.S. economy is likely to grow a meager 2 percent to 2.5 percent through next year, Hatzius said in a conference call Monday. But the pressure on policymakers to reduce govern- ment deficits could lead to additional steps that will slow growth. For example, the White House and Con- gress could allow a cut in Social Security taxes to expire at the end of this year, as scheduled. That could subtract another one-half percentage point from the economy’s growth rate, Hatzius said, and raise the risk of a recession. Government spending cuts, especially at the state and local level, are already a drag on economic growth. From April through June, public cuts lowered econom- ic growth, which was running at a weak 1.3 percent annual rate, by 0.23 percentage points. Since the federal government seems unlikely to do much to stimulate the economy, attention is turning again to the Federal Reserve, which meets Tuesday. Doug Roberts, chief investment strategist at Channel Capital Research, said the weakening economy and international turmoil mean the odds have ‘‘increased substantially’’ that the Fed will ultimately announce a new round of bond purchases designed to jolt the econ- omy by pushing down long-term interest rates. The Fed ended a $600 billion bond-buying program in June. ‘‘What’s rocking the market is a growth scare,’’ said Kathleen Gaffney, co-manager of the $20 billion Loomis Sayles bond fund. 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