Indices tank 1% after Fitch spoils mood on Street

global markets, after Fitch Ratings cut the sovereign credit rating of the US, the world's largest economy, by one level from the highest AAA to AA+. The selloff on account of the unexpected downgrade resulted in the Nifty closing below a key support of 19,560, which analysts said has opened up the likelihood of the index dropping another 2-3% unless there is an immediate rebound.NSE's Nifty fell 207 points, or 1.05%, to close at 19,526.55. BSE's Sensex declined 676.53 points, or 1.02%, to end at 65,782.78.

Both indices had fallen as much as 1.5% with the Sensex shedding over 1,000 points in Wednesday's trading before recouping some of the losses. Metals, automobiles and banks led the decline. Tata Steel fell 3.5% and Tata Motors dropped 3.2%.

Fitch cited fiscal deterioration over the next three years and a decline in governance standards as reasons for the downgrade. Analysts said continued elevated debt levels will begin impacting global economic growth. «The downgrade is a timely reminder about bloated government debt and the somewhat unsustainable path of fiscal spending and public debt, which could be a drag on global GDP growth,» said Sanjeev Prasad, MD and co-head, Kotak Institutional Equities.

Elsewhere in Asia, Japan cratered 2.3%, China sank 0.9%, Hong Kong fell 2.5%, South Korea declined 1.9% and Taiwan dropped 1.9%. The pan-Europe index Stoxx 600 fell 1.35%. In the US, the Dow Jones was down 0.81%, the S&P 500 was down 1.28%, and the Nasdaq Composite was down 2.12% at the time of going to press.FPIs dump shares worth Rs 1,878 crore Analysts said the stability in US bond yields and the dollar indicates the impact could be short-lived as history shows.