US AND EU ZONE DEBT PROBLEM AND DOWNGRADE and ITS IMPACT IN GLOBAL FINANCIAL MARKET and GLOBAL ECONOMY

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Debt crisis sends financial markets into turmoil Monday 8 August 2011
Shares have fallen around the world as traders respond to America's credit rating downgrade, fears over the global economy, and the latest efforts to calm the European debt crisis

The London Stock Exchange has experienced another day of heavy losses, with the FTSE 100 now down 12.8% this month. Photograph: Yui Mok/PA 6.30am: "There's a crisis of confidence across the financial world". That's the message from Bloomberg TV this morning as traders arrive at City trading floors for the first time since Standard & Poor's downgraded America's credit rating. Investors are also gripped by the latest developments in Europe's debt crisis. Late on Sunday night the European Central Bank pledged 'decisive action' to save the euro - and is expected to start buying Spanish and Italian government bonds today.

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Asian markets have already fallen sharply, amid fears of a new global recession. Traders are predicting that the FTSE will fall by more than one hundred points when trading begins - adding to last week's heavy losses. We'll bring you the latest action from the City and beyond, as the financial crisis threatens to enter a new phase. 6.45am: Europe's major stock markets open at 8am BST. IG index is calling the FTSE 100 index down 117 at 5130 - a fall of around 2.2%. Losses on other markets may be less dramatic. The German DAX is being called down 55 at 6181 and the French CAC down 34 at 3244. Here's more from IG's Cameron Peacock: Despite US Treasury attempts to discredit the S&P downgrade that was served up on Friday night as a bitter finish to a disastrous week for equity markets, the bears are set to attack once again as Europe's trade gets underway. Add this to the mounting sense of panic over the eurozone debt crisis with emergency talks being held amongst finance ministers over the weekend and there's little reason to be cheerful. As a result, Asian markets are struggling already but despite the shadow this is casting over sentiment, the fact remains that equities are now generally trading at such a discount that even if there's more downside to come, this stage of the sell-off must soon be set to run out of steam. 6.51am: Stock markets across Asia were the first to react to the situation, and in many countries the verdict was stark. In South Korea, some trading was suspended after the main index - the Korea Composite Stock Price Index (KOSPI) - plunged by 7.4%. Japan's Nikkei hit a five-month low and is down over 2% in late trading, led by banks and exporters. The losses were across-the-board: the New Zealand and Australian stock markets also slid by at least 2%. Hong Kong's Hang Seng Index lost 4% at one stage, with the Shanghai Composite Index down by 3.7%. 7.12am: The dash for safety has sent gold racing to yet another record high - with the cost of an ounce of bullion leaping by over $50 this morning to $1,715. That's a 3% increase. Tellingly, gold has hit a record high on 11 of the last 19 trading days, according to data from Reuters. Back in late January, an ounce was changing hands for just over $1,300. While some analysts argue that gold is a bubble ripe for popping, goldbugs insisted that the precious metal is only moving in one direction. Next stop - $2000 per ounce, argues Dominic Schnider, executive director for wealth management research at UBS.
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What people are realizing is that dollar and euro currencies have real problems and I think that's manifesting in the gold price. I would say the way things evolve right now I really could even imagine $2,000 being in the cards.

7.18am: The Russian stock market has opened, and the main index promptly fell 3.5%. The 61 point fall to 1736 points pushed the RTS index to its lowest level for the year. More evidence that the shockwaves from the loss of America's AAA credit rating (with S&P, anyway) are being felt worldwide. 7.25am: The ECB's pledge to start buying government bonds to prevent the crisis spreading further appears to be having an effect. My colleague Alex Hawkes has more details: Both Italy and Spain's borrowing costs have dropped this morning, following indications from the European Central Bank that it would start buying the countries' bonds to settle the markets. Yields on ten-year Italian bonds are down by almost half a percentage point to 5.6%, while Spanish bond yields have fallen 0.3 percentage points, to 5.7%. Traders suggested the move could be temporary, but any suggestion that Eurozone debts could be more manageable will help to limit the panic when the markets open at 8am. 7.44am: Japan's stock market has now closed after a pretty nervy session, but one where we didn't see a full-blown panic. The Nikkei ended 2.18% lower at 9,097.56, down 202.32 points, having been as low as 9,057.29 at one stage. "The three main concerns are S&P's downgrade of the U.S. debt rating, the ongoing European debt problems and inflation worries in China," Masanaga Kono, chief strategist at Amundi Japan, told Reuters. Most Asian markets are still trading, and they are all suffering losses . China's Shanghai Composite is down by over 4%. We'll do a full round-up of the Asian markets once they've closed - they've already helped to set the mood in Europe.... 7.58am: Now here's a thing - US Treasury bonds have actually strengthened since S&P warned that the country was more of a credit risk.

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In early trading the yield (interest rate) on 10-year US government bonds fell to a new record low of 2.526%. That's a new record low -- and suggests that American debt remains the safehaven of choice. The stock markets are about to open. If there's a real rush of sell orders, it may take a few minutes for all the constituents of the FTSE 100 to start trading.... 8.01am: The London stock market is open.... and the screens are covered in red electronic ink. Ninety four shares have lost ground at the start of trading, led by commodities giant Glencore (down 3.6%). However, the selloff isn't as severe as we were expecting. The FTSE 100 fell by 1.2%, or 66 points -- avoiding the triple-digit selloff we were expecting. Is the City's holding its nerve?.... 8.08am: Traders are relieved that the FTSE 100 (now down 40 points as I type) didn't suffer a worse decline. My colleague Rupert Neate is embedded in IG Index's trading floor, and reports that: Will, the trader I'm watching, was pleased to see the FTSE only open 60 points lower. "Ah only 60 that's fine" says Will "That's fine". Rupert also tells me that: There was lots of shouting about IG Index's exposure in the run-up to the open. But no swearing (which is customary) because of a special email to spare the Guardian's blushes.

8.17am: Across Europe, many stock markets are rallying. Spain's IBEX and Italy's FTSE MIB have both gained just over 2% in early trading. The FTSE 100 is now only down 7 points, and looks to be threatening to break into positive territory. Why? Will Hedden, the IG expert trying to trade with Rupert Neate peering over his shoulder, reckons that the latest events "must've all been priced in". It's true that investors were openly asking when, rather than if, S&P would cut the US AAA rating. Perhaps last night's pledge from the European Central Bank to intervene in the markets really has calmed nerves.

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8.25am: Remarkably, the FTSE 100 has now shaken off that 60 point drop and is now up 32 points. So, a 150 point swing in 25 minutes - but certainly not the drama that experts were predicting last night. There's a real sense of calm coming through the City, and I think we have to credit last night's statement from the ECB. Moody's also put out a statement explaining why it still gives America a AAA rating (I'll bring you the full statement shortly). 8.49am: Despite this morning's surprising (and welcome) rally, the stock market is going to be volatile today and for some time, according to two City traders. Michael Hewson of CMC Markets reckons we're looking at a "temporary respite", which he attributes to "vagaries of the markets". "The ECB buying debt is only a stop-gap measure...has anything changed fundamentally or technically?" Josh Raymond of City Index points out that a 36-point rally, although welcome, does little to claw back last week's losses: Before we all get ahead of ourselves, we need to see the FTSE100 back above 5400. We've certainly not seen aggressive risk [yet] Financial shares are leading the risers in London. Royal Bank of Scotland is up 6.3% to 29.9p, followed by Lloyds Banking Group, up 5.8% at 34.75p. Some relief for taxpayers, who own large stakes in both banks. 9.15am: The ECB's move to start buying Italian and Spanish government bonds is continuing to have an effect. The bond yields on both counties' 10-year bonds has slid well below the 6% level that marks whether a sovereign is "at risk". From 6.2% overnight, Italian 10-year yields have dropped to 5.42%. Spanish yields have fallen more sharply, from 6.1% to 5.31%. Traders report seeing the ECB moving into the market to buy up these bonds, as pledged last night, through its Securities Markets Programme. "It is without a doubt the unilateral 'intended action' made clear by the ECB and G7 over the weekend that is helping to lift Spanish, Italian and to a lesser extends, broader European Indices today," said Josh Raymond of City Index. "The joint agreement between France and Germany that the EFSF should also be used to buy bonds of indebted nations also helps to support the concern about Italian and Spanish debt," Raymond added.

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Elsewhere in the markets, the FTSE 100 has just slipped into the red again, down 9 points at 5238. 9.30am: Over in the financial heart of London, Rupert Neate reports that: The view from IG Index's trading floor Trading in the City is nothing like the movies. There's no bear pit, no stripy jackets and no braces. It's not even very noisy, although there is occasional shouting across the floor whenever someone makes a big trade. Will Hedden, a trader at IG Index, says the main reason the room seems so quiet is the lack of ringing phones. "It's not like the old days when the phones rang like mad and you could hear the room from the lift," he says. "Now we've got these [headsets] so you don't hear the phones ring. But trust me they are ringing." He's right, his phone is lit up like a Christmas tree with calls waiting. But that doesn't mean he has got time to chat and tweet . Traders here at IG Index were expecting a hectic day today, but so far the FTSE has performed much better than expected. "Thursday night and Friday were mental given everything happening in Europe, and we were expecting more of the same today," says Hedden. "But actually it's pretty calm." But he says it's too early to relax. "I'm pretty bearish and had been saying we had this [last week's fall] coming for weeks. "I still think it's going to fall further. I think we're going to fall below 5,000 before we rise above 6,000." The FTSE 100 is now down 12 points (not what I was expecting when I set my alarm for 3.45am). 9.55am: World leaders have pledged to work together to prevent the global financial system collapsing. Earlier this morning the G20 group of leading industrialised and developing nations released a statement which, although lacking detail, is designed to reassure the markets. Here's the full text: We, the Finance Ministers and Central Bank Governors of the G20, affirm our commitment to take all necessary initiatives in a coordinated way to support financial stability and to foster stronger economic growth in a spirit of cooperation and confidence. We will remain in close contact throughout the coming weeks and cooperate as appropriate, ready to take action to ensure financial stability and liquidity in financial markets. Moreover, we will continue to work intensively to achieve concrete results in support of strong, sustainable and balanced growth in the context of the G20 Framework for Growth.

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The reference to ensuring "financial stability and liquidity" is crucial here -- could we see central banks acting together to address currency imbalances? Or a co-ordinated bond-buying programme to keep yields down? "Strong, sustainable and balanced growth" appears to be some distance away, following the recent disappointing GDP data from the US (and the UK). America's economic slowdown, in particular, has raised fears of a double-dip recession and even a global slowdown. 10.05am: Banking shares are leading many of Europe's stock markets -- driven, it seems, by the promise of the ECB buying up Italian and Spanish debt. Alex Hawkes has rounded up the major moves: European bank shares have led the way this morning. Spanish banks Santander and BBVA were both up more than 6% at one stage, as were Italian banks UniCredit and Intesa Sanpaolo. In France BNP Paribas is up 2.2%, while Socit Gnrale is up 1.8%. The UK's banks are all beneficiaries too - RBS is up 3% while Lloyds Banking Group has risen 3.3%. Belgian bank Dexia Group is up 2.4%. 10.28am: Europe's stock markets have turned south in the last few minutes, as that early sense of optimism evaporates in mid-morning trading. The FTSE 100 just stumbled to its lowest level of the day, crunching through the 100-point loss mark to 5143, a 1.9% fall. That brought it almost into line with the gloomy overnight predictions. The trigger appears to be predictions that shares will fall heavily on Wall Street, which opens at 2.30pm BST. The early futures call is for a 210 point plunge on the Dow, to 11,222. 10.59am: Looking across the financial markets, shares are now back in retreat. London's losses are mirrored across Europe, with many markets suffering even greater falls. Germany's DAX is down 2.5%, a hefty selloff after last week's declines. Greece's losses are particularly alarming, with stocks down by 4.5%. Just calling analysts now to get a handle on what's driving these moves. As mentioned, the key trigger was the Wall Street futures . The FTSE 100 keeps bouncing around the 100-point loss mark, flailing around like a harpooned beast.... 11.12am: While I pester a City expert, you can read about how Britain will lose its AAA credit rating within a few months. That's the view of US investor Jim Rogers, in an interview with Reuters. Rogers also argues that S&P was too slow to cut America's rating. Here's some snippets for those of you without a Reuters terminal.

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The idea that the U.S. is downgraded and the UK is not is lunacy. There are many countries, Belgium, Spain, lots of countries in Europe, that should be downgraded just as the U.S. has been downgraded. At present, of course, Britain has a stable AAA rating with the three major ratings agencies. Rogers, who ran the Quantum Fund with George Soros in the 1970s, also predicted a new bout of quantitative easing: They'll try to disguise it. They'll call it cupcakes or who knows what. It'll cause a big rally in raw materials and commodities because more and more people will realise they are printing money, they are debasing the currency. Warren Buffett, pictured at Berkshire Hathaway annual meeting this year, remains bullish on the US economic future. Photograph: Rick Wilking/Reuters 11.40am: As America wakes up, talk in the financial markets continues to centre on S&P's downgrading of the prized triple-A credit rating. Legendary investor Warren Buffett has issued another rallying cry this morning, insisting that America deserves the best credit rating around. He just appeared on CNBC to announce that his firm, Berkshire Hathaway, is still buying US Treasuries, and that his view of America's government debt has not changed. If anything, it may change my opinion on S&P. Our currency is not AAA, and in recent months the performance of our government has not been AAA, but our debt is AAA. It's worth remembering that Berkshire Hathaway already holds about $40bn in US government bonds - Buffett isn't a man who going around talking his book down. Despite his optimism, Wall Street is still being called down around 217 points lower at 11215.

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Louise Cooper of BGC Partners. Photograph: Oliver Woods 11.47am: While Buffett was addressing the US nation, I was on the phone with Louise Cooper, markets analyst at BGC Partners. She confirmed that it was the prediction of heavy losses on Wall Street that sent stocks, including the FTSE 100, falling so sharply this morning. The European rally happened on the back of the ECB's move to support Italian and Spanish bonds, but markets are now looking nervously at Wall Street. It's worrying that the markets cannot sustain a relief rally - every time shares start to rally, they get smacked down by heavy selling. Cooper described the ECB's decision to buy eurozone government bonds as an "utterly huge move", which helped to drive down Italian and Spanish bond yields (see 9.15am): Who is going to stand in the way of the ECB, when it has such huge firepower - at least in the short term? In the long-term, though, the ECB's activities in the markets are determined on the ability, and willingness, of Germany and France to support it. Without their backing, the ECB's could still be left firing blanks. What is the state of the ECB's balance sheet? It's full to the rafters with Greek debt, so I can't believe it's that great....

12.30pm: Time for a proper round-up of the day's events so far:

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 World stock markets have suffered heavy falls in the aftermath of S&P's downgrade of the US, and the latest efforts to protect the eurozone The FTSE 100 is currently down 98 points at 5148, having been as low as 5141. Other European market suffered falls, with Germany's DAX down 2.6% and the Greek stock market falling 4.5% Wall Street is expected to see heavy losses, with the Dow Jones forecast to fall over 200 points Italian and Spanish bonds have strengthened after the ECB pledged to buy them, but analysts question how long this plan can last Warren Buffett says America deserves a AAA rating... ...but Jim Rogers says Britain doesn't Earlier, The Japanese Nikkei fell 2.18%, down 200 points to 9,097. The Chinese Shanghai Composite finished 3.8% down. The Australian S&P/ASX 200 was down 2.9%, or 119 points, at 3,986. The Hong Kong-based Hang Seng fell 2.2%. 12.35pm: The financial crisis is also dominating the political agenda, despite many of our leaders being on holiday. This just in from Andrew Sparrow, our senior political correspondent, at Westminster, reporting that the government is arguing that the crisis vindicates its policies. Nick Clegg claimed on Monday that the international debt crisis vindicated the government's decision to make getting rid of Britain's budget defict its priority. In his first comments on the financial situation since his return from summer holiday, the deputy prime minister also said that the European Central Bank's promise to buy government bonds from Italy and Spain seemed to be "calming the markets". Clegg was speaking mid-morning, at a time when the FTSE 100 briefly seemed to be ralling. But later in the morning stock market losses continued in London and elsewhere in Europe. Asked if the ECB's intervention meant Europe had stepped back from a crisis, Clegg said: "Clearly these are very turbulent times in the markets. There is a lot of volatility. I think it is promising that the statements from the French and German leaders, from the European Central Bank, from the G7 finance ministers have had, it seems, some effect at placating the markets and calming the markets, but there is a lot of work to do." But Clegg did insist that the crisis illustrated why the government was right to introduce sweeping spending cuts in a bid to largely eliminate Britain's structural deficit by 2015. 1.06pm: Today's heavy sell-off means the FTSE 100 risks suffering its fourth triple-digit loss in a row. And that, my colleague Tom Bawden says, has never happened since the blue-chip index was created in 1984.
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FTSE 08/08/2011 Photograph: Reuters This graph shows the way the FTSE has performed since 8am. It plunged at the start, but then rallied to a healthy-looking 40-point gain. At that point, reader Vistisen questioned whether we were right to talk about market "turmoil" in the headline above, and I rather agreed... ....but the rally soon petered out, with the FTSE falling by 105 points as traders woke up to the prospect of heavy losses on Wall Street this afternoon. At pixel time, the FTSE 100 is down 81 points at 5165, so it may avoid setting an unwelcome record with another triple-digit loss......

1.20pm: America's borrowing costs have continued to fall today, as S&P's downgrade seemingly makes investors keener, not more nervous, about holding US debt. The 10-year Treasury Bill is changing hands for 2.483% as I type, which is its lowest level since October 2010 -- when the AAA rating looked to be rather secure. A good sign that America retains the support of investors? Not necessarily, according to our economics editor Larry Elliott. Instead, it may be an indication of how pessimistic people are about the US economy. Because: Movements in US bond yields reflect what investors think about the underlying health of the American economy. Bond yields tend to go up when economies are growing rapidly and financial markets catch a whiff of inflation. Bond yields tend to fall when growth is weak and they fall a lot when there is a perceived threat of deflation. Economic fundamentals have more influence on the bond markets than the credit rating agencies, in other words.

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More here. 1.45pm: Standard & Poor's name has been dragged through the mud since coming out with its credit rating downgrade - partly due to claims that it made a $2trillion blunder in its workings out (heck, we've all been there). But the question remains, was S&P right to downgrade the US credit rating? US Treasury Secretary Timothy Geithner has attacked Standard & Poor's 'terrible judgment' in downgrading US debt from its triple-A rating. Is he correct or do you think S&P has it right? You can vote here - please let us know what you think. 1.51pm: Silvio Berlusconi is being roundly criticised and urged to resign by Italian opposition leaders, after agreeing a deal with the European Central Bank over the weekend. Antonio Di Pietro, head of the opposition Italy of Values party, accused the Italian prime minister of surrendered Italy's sovereignty, by agreeing to accelerate some of its austerity plans. According to Reuters Di Pietro also Berlusconi had been "dragged by the ear by the EU and international economic institutions" to the news conference where the measures were announced. "Berlusconi should perform a service to his country for the first time and go," he said. Given the other scandals that have bounced off Berlusconi, I fear Di Pietro may be unlucky this time. But there is certainly plenty of pressure piling up on the embattled PM. Susanna Camusso, head of the CGIL, Italy's largest union federation, has demanded that Berlusconi tell the nation "what conditions were imposed by the ECB" in return for buying Italian bonds. Whatever those conditions were, the move is still working -- with Italian 10-year yields trading around 5.3% today. 2.20pm: With just 10 minutes to go until Wall Street opens, the mood in the markets is getting increasingly gloomy. Spread-betters are predicting a 240-point drop on the Dow Jones index, to around 11,192. That's helped to push the FTSE 100 even lower - it's currently down 115.26 points, or -2.2%, at 5131. Russia's stock market continues to suffer too, down over 5%. Oh, and the euro just hit its lowest level against the dollar so far today, at $1.4179. That's a fall of over two cents (it opened at $1.4385).

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2.32pm: Ding-ding-ding-ding-ding... that's the bell to mark the start of trading on Wall Street being rung.... And the selloff begins in earnest. The S&P 500 has dropped 2% out of the gate, while the Dow Jones also tumbled and is now 192 points, or 1.7%, lower at 11249 (it was 220 points down right at the off, and there's some frantic trading going on) Not quite as dire as we feared, and it's dragged the FTSE 100 back to a mere 75-point loss.....

2.42pm: While we're waiting for the New York stock market to settle down (the first 30mins are usually particularly volatile), I'll just say a big "thanks" for the comments and questions below as ever, they're much appreciated. Three of my senior colleagues - Larry Elliott, Jill Treanor and Nils Pratley - have just been answering a few of the best questions. Hannah Waldram has been handling this impromptu Q&A below the comments line - I'll post them up here as well once things calm down, but just scroll down or click here to see 'em now.... 2.48pm: Bank of America's shares have fallen particularly sharply on Wall Street, down around 7% in early trading. That follows the $10bn lawsuit filed by AIG( American International Group) against BoA , alleging a "massive fraud" on mortgage debt. A good reminder that many of the wounds of the first phase of the financial crisis have not healed. 2.54pm: The opening of Wall Street sent pulses racing in the City. Rupert Neate, our man in the IG offices, has more: The IG trading room erupted into life at 2:30pm BST when the Dow Jones index opened 2% down. Suddenly all the brokers were plugged back into their headsets and the shouting started. "Wow, there's some odd stuff going on," said one broker. While others shouted out for anyone who "speaks Italian" as suddenly Italy leapt to the top of the agenda again. The IG Index trading floor earlier today Our friendly sales trader Will Hedden suspects that today could turn into a "pizza day".... "There have been three days since I started three days ago when it's got to hectic we've ordered in pizzas [as there wasn't time to go out for food]." His last pizza day was on Friday, which was "really crazy". The others were during the Oct 08 financial crisis and the 2010 "US election flash crash".

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Hedden says more than 800m shares have been traded so far today, which is already "far above" the average for a dull day's August trading. More than 2 billion shares were traded on Friday, which Hedden says disproves that suggestions that Friday's crash was caused by "summer interns trading low volumes". "That [the rumour] is utter, utter rubbish," Hedden says. "Some people may be on holiday but it's not like the whole of the City is laying by the pool somewhere." 3.10pm: We mentioned earlier that Standard & Poor's has been swamped with criticism over the US debt downgrade. The rating agency just held its second press conference in two days, and it sounds like the pressure may be telling. The details will go up on the S&P website shortly, but our Wall Street correspondent Dominic Rushe has the details and instant analysis: We heard a robust defence of the US downgrade from John Chambers, S&P's chairman, who seemed to suggest that the ongoing row was all getting a bit out of proportion. Chambers argued that the cut was like swapping "indigo for navy blue." Chambers apparently took a dismissive approach to the row about S&P's $2trillion accounting error.... The White House has savaged S&P for making errors in its calculations. Chambers says they made two projections using two sets of figures and the row makes little difference to long-term figures. Using the"right figures", America ends up with debts of $14.5trillion in 2015 if things don't change, instead of $14.7trillion under S&P's disputed data. That's not enough to save the AAA rating, S&P said. More from Dominic: It's official though, it was the Tea Party what dunnit. The "extraordinary" political environment in America today has convinced S&P that the US will struggle to find a political solution to its fiscal woes. S&P David Beer's gave UK, France and Germany the thumbs up. He said all three countries were better able to generate the political will needed to address their fiscal challenges. Chambers also had a swipe at Alan Greenspan, who suggested on Meet The Press this weekend that the US could always print money to pay its debt obligations, a "somewhat simplified view" he said. He pointed out that it hadn't really worked for Zimbabwe. Golly, S&P v Greenspan! Two of the biggest architects of the financial disaster head to head. It's like Megashark v Dinocroc .

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S&P is holding another press conference later this week. Someone's feeling defensive.

UPDATE: Another of our US-based correspondents, Richard Adams, has got in touch to question the validity of Chambers' attack on Greenspan: Since the majority of Zimbabwe's sovereign debt is and was denominated in foreign currencies, it couldn't use local currency to pay for its debts in foreign currency, no matter how much it printed. The US, on the other hand, is in the fortunate position of having all of its debt, both domestic and external, denominated in its local currency. So of course Greenspan is right on that point. Chambers is either taking a cheap shot or he's an idiot. Or possibly both. 3.38pm: This is turning into a rout. US shares are falling sharply now, dragging Europe down with them. The FTSE 100 is currently down 177 points, or 3.3%, at 5069. On Wall Street, the Dow has shed 359 points, again over 3%, to 11082. The Nasdaq is off by 4%. Some of the losses are quite alarming. Bank of America is now down 9.7% (we flagged up its lawsuit problems earlier), and Citigroup is nearly 7% lighter. In London only two shares are in positive territory - bullion producer Randgold, and insurer Old Mutual. Mining groups are being, er, hammered, with Kazakhmys falling 9.6%. So what triggered this bout of selling? It appears to be our friends at Standard & Poor's, announcing a one-notch downgrade to US mortgage firms Fannie May and Freddie Mac. That's a consequence of main US downgrade. The chatter in the City is that this Fannie'n'Freddie downgrade ought to be priced in. Clearly not..... 3.48pm: The share selloff is particularly severe in Germany.

The German DAX is down by 5% in late-afternoon trading. The index has plunged through the 6,000 point mark for the first time since early September 2010. The Athens stock market has also been badly burned, closing at a 14-year low in the last few minutes. The ATG index fell 6% and ended at 998 points, the first time it has been below 1,000 since 1997, I believe.

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The FTSE appears to be steadily on track for a record-breaking fourth day of triple-digit declines. Currently down 155 points at 5090. Tesco has just clambered into the list of daily risers, so there's three now.

4.11pm: The Greek stock market has just announced a ban on short selling (where investors borrow stock they don't own, sell it, and rely on buying it back cheaper). The ban runs for two months. Given that the Athens stock exchange just fell 6%, it's no wonder that regulators are jittery. But this is very reminiscent of 2008 (when the fundamental problem was the weakness of the financial sector, not the traders who identified it). Italy's regulators are saying they have "no plans" to follow suit.... 4.21pm: President Obama is to give a televised address in around 90 minutes time, the White House just announced (so 1pm Eastern time, or 6pm BST). He's expected to discuss the economic situation, as well as Afghanistan. This will be the first time that Obama has spoken publicly since the S&P downgrade was announced - we'll see if he follows Tim Geithner by criticising the agency, or whether he takes a more positive approach and simply argues that America still deserves a AAA rating. 4.29pm: Just a few seconds to go until today's trading session is (hurrah!) over. The FTSE 100 is currently down 142 points at 5104, but it will take another ten minutes or so before we get the official close.... 4.39pm: Ouch! The FTSE 100 has now officially closed, and the blue chip index has fallen 178.04 points to 5,068. That's a decline of 3.39% today. Since August 1, after the debt ceiling deal was signed, the FTSE has shed 746.24 points. That's a 12.8% decline in six sessions. As we reported back at 1.06pm, this is the first time that the FTSE has suffered four triple-digit drops in a row. Although we've not seen a repeat of the huge percentage swings experienced in 2008, there has been a remarkable loss of value.

4.50pm: Today's selloff has wiped another 46.3bn off the value of the FTSE 100, my colleague Tom Bawden tells me. Looking at the risers and fallers.... well, there's only one share in positive territory, which is gold producer Randgold (defying gravity with a 7.43% jump).
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The fallers are led by mining giants -- Kazakhmys has the unfortunate honour of suffering the biggest loss, down just over 10%, followed by Vedanta (-9.3%). 5.18pm: City analysts are describing Monday's trading as "extremely choppy", and continuing to express concern over the US economy, and the eurozone debt crisis. Giles Watts, head of equities at City Index, believes the City may be facing further heavy losses in the days ahead: The price action we have seen over the last few trading days bears the hallmarks of a potentially large bearish move for stocks. Should the FTSE 100 make a concerted break below the psychologically important 5000 level, and the Dow Jones see a similar bearish break below 11,000, it could put stocks under more pressure. Here's how Michael Hewson of CMC Markets saw the day: Equity markets in Italy and Spain manage to hold onto positive territory until the afternoon session when it was like a trapdoor opening as markets plunged post US open, with the FTSE hitting close to one year lows and the German DAX plunging below the 6,000 level for the first time in nearly a year, falling over 20% since its April highs. As concerns about the rating downgrade increase there are fears that the US will have to cut spending sharply in order to consolidate its finances which in turn will cause growth to slow further. Further downgrades of assets reliant on the US government's rating have seen stocks remain under pressure after Freddie Mac and Fannie Mae were also downgraded with further downgrades of affiliated assets likely. And Jim Leaviss, head of retail fixed interest at M&G, fears that the European Central Bank's plan to buy Italian and Spanish debt still fails to address the Eurozone's problems: Four years since the ECB first intervened in the money markets, we believe that the credit crisis has never really ended, and recent interventions are just another example of 'kicking the can down the road'. What this means for bond fund managers is that credit analysis of governments is now as important as for corporate bonds. The stresses of 2008 are re-emerging, and inter-bank lending rates have increased, as banks are again refusing to trust each other. The result is that they are not lending, once again leaving central banks as the lenders of last resort. There is the potential that the crisis will cause economic growth to decline in the foreseeable future.

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5.29pm: City traders are looking at a late finish in the office, according to my colleague Rupert Neate who has spent today with IG Index: At 4:30pm the London market closed, but you wouldn't know it on IG's trading floor, where the phone calls kept coming and the traders stayed glued to their computer screens. "The European market may have closed, but that doesn't mean it all stops," says Will Hedden, sales trader at IG. "We still trade future indices and currencies." On a normal day, Hedden, who arrived at the office at 7:15am, would be going home "on the dot of 4:30pm". "But, today is different," he says. "I'll be here till at least 5:30pm, maybe later." Today is the first time in 27 years that the FTSE 100 has suffered four straight days of 100pointsplus declines, but it's Germany and France that are troubling Hedden. "The DAX [Germany's index] has closed down almost 5% - that is a big, big move," he says. "You get big swings in the smaller countries, but it is very rare to get that sort of swing in big index, with big, big companies like BMW." France's CAC also fell sharply, closing 4.68% lower. "This aggressive selling of Germany and France is worrying, and shows that this is a wider problem...France and Germany are massively out-selling the PIIGS [Portugal, Italy, Ireland, Greece, Spain, the countries at the centre of the debt crisis]," he said. "I mean Germany's meant to be one of the countries that's fine..." Hedden says the indices are down because traders are "massively selling out of the euro". The Euro is down nearly two cents against the dollar today, at $1.419. When he does get to leave the office, Hedden has got another problem to contend with. "I'm cycling home to Chingford, and my route takes me right through all the areas which are being talked about as rioting hot spots."

That's if goes home at all. As I was preparing to leave an email popped up on Hedden's computer calling for volunteers to do an extra shift manning IG's customer services helpline, which has been flooded with anxious day traders.

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5.53pm: Fresh from toasting S&P boss John Chambers, our own Richard Adams reminds me that America found itself in a much deeper crisis on this very day, 37 years ago ..... Tricky times indeed. 6.03pm: We're hearing that President Obama's speech on the American economy has been pushed back to 1.30pm EST / 6.30pm BST. My US colleagues will be covering that for us, so keep an eye on the site.

Quite an eventful day, a record-breaking one too for the FTSE 100. Here's a round-up of the key events: The FTSE 100 suffered its fourth straight day of triple-digit losses, a record, with a 178 point fall to 5068. 46.3bn wiped off Britain's biggest companies German and French markets fall sharply, while Athens hits a 14-year low Wall Street is also suffering heavy losses , as traders reacted to the S&P debt downgrade S&P defends its decision to cut America's AAA rating, as Warren Buffett criticises the firm Italian and Spanish bond yields recovered, as the ECB started buying their government debt Gold broke through the $1,700 per ounce mark, and some traders see it hitting $2,000 this year Traders are predicting more drama on Tuesday, especially as America's Federal Reserve Open Market Committee will be meeting.....

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