Wall Street rallies as Fed move over-rides Spain's downgrade

Stocks on Wall Street rallied as investors focused on interest rates being held in the US rather than Europe’s widening sovereign debt problems.

Standard & Poor's downgraded its debt rating on Spain by one notch, just as a resolution to the implementation of Greece's aid package seemed to be in sight.

Spain was dropped to double-A with a negative outlook. Meanwhile, latest estimates said the extent of the Greek bailout could double to €100-120 billion.

In the US, investors were cheered by the US Federal Reserve’s announcement that while the economy continued to strengthen it expected interest rates to stay near zero for an "extended period."

The Dow Jones Industrial Average closed 53.28 points, or 0.5%, higher at 11,045.27.

The benchmark was led by its financial components as two key senators neared a deal within the financial overhaul legislation that would drop a $US50 billion fund designed to pay for the liquidation of failed firms, the Wall Street Journal reported.

The money would have been collected in advance from large firms. JP Morgan Chase jumped 2.4%, while Bank of America climbed 1.1%. Exxon Mobil was also strong, up 1.7%, after a surprise fuel inventory drop.

The S&P 500 index rose 0.6% to close at 1191.36, led by its financial and energy sectors, while the Nasdaq Composite rose less than a point to 2471.73.

Other markets: Europe, Asia down

European stocks tumbled on Spain’s sovereign debt downgrade. Financial stocks took the brunt of the day's selling, with the pan-European Stoxx 600 index closing 1.3% lower at 258.24.

Fortis dropped 7.4% in Brussels and ING fell 3.9% in Amsterdam.

France's CAC-40 index ended 1.5% lower at 3787.00, Germany's DAX lost 1.2% to 6084.34 and the UK's FTSE 100 index reversed earlier gains to close 0.3% down at 5586.61.

Asian shares fell sharply as Europe’s sovereign debt problems hit financial and resource stocks. Japanese exporters were also hurt by a strengthened yen.

The Nikkei Stock Average of 225 companies lost 2.6% to 10,924.79, Hong Kong's Hang Seng Index gave up 1.5% to 20,949.40, China's Shanghai fell 0.3% to 2900.33, and Taiwan's Taiex slid 0.8% 8081.55.

Australia's S&P/ASX 200 index declined 1.2% to 4822.79, its lowest level in more than a month. BHP Billiton lost 2.2% and Commonwealth Bank of Australia fell 0.7%.

Korea's Kospi dropped 0.9% 1733.91. India's Sensex fell 1.8%to 17,380.08 and Singapore's Straits Times Index fell 2% to 2932.04.

Commodities: Oil down, gold up

Crude-oil futures fell after early gains as Europe debt problems continued to roil the market.

Light, sweet crude for June delivery traded down 13USc to $US82.32 a barrel in New York Mercantile Exchange. Brent crude on the ICE futures exchange traded down 48USc to $US85.30 a barrel.

Gold futures received a bump, giving investors another excuse to seek out assets relatively safe from default.

Futures in New York rose as high as $US1175.30 an ounce, the highest level reached in intraday trading since December 4. The most actively traded contract, for June delivery, traded 0.9% higher at $US1172.50.

Currencies: Euro down, dollar up

The euro sank to a new one-year low as Spain’s downgrade. It fell as low as $US1.3114 before staging a modest recovery in extremely choppy trading.

The euro was at $US1.3151 from $US1.3176 late on Tuesday.

The dollar was at ¥94.02 from ¥93.17, while the euro was at ¥123.65 from ¥122.76.

The UK pound was at $US1.5166 from $US1.5249.