Portugal Colonial - Stock markets slide after US downgrade

Ratings agency Fitch downgraded the United States' top-notch credit rating by a step late Tuesday, citing a growing federal debt burden and an "erosion of governance" that has manifested in debt limit standoffs.

The decision to downgrade the US from AAA to AA+ sparked a fiery rebuttal from the White House.

"US markets are expected to follow their Asian and European counterparts lower in the wake of a surprise Fitch downgrade," noted Joshua Mahony, chief market analyst at Scope Markets.

"For markets, this will likely only represent a short-term dent in confidence."

The announcement meant it would be more expensive for the government to borrow. However, the risk-off sentiment sent traders rushing to safe assets, such as Treasuries, as well as the yen.

The downgrade follows a long, drawn-out row between Republicans and Democrats earlier this year over raising the US borrowing ceiling, which had fuelled fears of a devastating default by the world's top economy.

While a deal was eventually struck, the saga rattled markets and reinforced the sense of long-running deadlock on Capitol Hill that has seen the gears of government jammed up.

Though the lifting of the US debt ceiling -- a limit on government borrowing to pay for bills already incurred -- was once routine, it has for several years become a contentious partisan issue.

The downgrade is the first by a major ratings company since a similar debt impasse in 2011 saw S&P lower its top-notch classification for the United States.

White House press secretary Karine Jean-Pierre said the move "defies reality", while Treasury Secretary Janet Yellen voiced strong opposition, calling the change "arbitrary and based on outdated data".

- Key figures around 1045 GMT -

London - FTSE 100: DOWN 1.1 percent at 7,583.17 points

Frankfurt - DAX: DOWN 0.8 percent at 16,108.83

Paris - CAC 40: DOWN 0.7 percent at 7,354.33

EURO STOXX 50: DOWN 0.8 percent at 4,370.87

Tokyo - Nikkei 225: DOWN 2.3 percent at 32,707.69 (close)

Hong Kong - Hang Seng Index: DOWN 2.5 percent at 19,517.38 (close)

Shanghai - Composite: DOWN 0.9 percent at 3,261.69 (close)

New York - Dow: UP 0.2 percent at 35,630.68 (close)

Euro/dollar: DOWN at $1.0980 from $1.0985 on Tuesday

Pound/dollar: UP at $1.2783 from $1.2776

Euro/pound: DOWN at 85.88 from 85.96 pence

Dollar/yen: DOWN at 142.73 yen from 143.34 yen

Brent North Sea crude: UP 0.7 percent at $85.47 per barrel

West Texas Intermediate: UP 0.7 percent at $81.92 per barrel

E.Borba--PC