Breaking News: US CREDIT RATING DOWNGRADED

Breaking news from Reuters, MSNBC and the Associated Press announce S&P downgrades US credit rating.

S&P DOWNGRADES US CREDIT RATING FROM AAA
S&P issues unprecedented downgrade of US credit rating, saying debt package falls short

Associated Press (AP)
Martin Crutsinger, AP Economics Writer, On Friday August 5, 2011, 8:42 pm

WASHINGTON (AP) -- Credit rating agency Standard & Poor's says it has downgraded the United States' credit rating for the first time in the history of the ratings.

The credit rating agency says that it is cutting the country's top AAA rating by one notch to AA-plus. The credit agency said late Friday that it is making the move because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilize the country's debt situation.

A source familiar with the discussions said that the Obama administration believes S&P's analysis contained "deep and fundamental flaws."

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US GOVERNMENT LOSES TRIPLE-A CREDIT RATING
S&P had warned government of action; US debt now rated lower than European countries'

Reuters and CNBC contributed to this report.

WASHINGTON — The United States lost its top-notch AAA credit rating from Standard & Poor's Friday, in a dramatic reversal of fortune for the world's largest economy.

S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about growing budget deficits.

U.S. Treasuries, once undisputedly seen as the safest investment in the world, are now rated lower than bonds issued by countries such as the United Kingdom, Germany, France or Canada.

The outlook on the new U.S. credit rating is negative, S&P said in a statement, a sign that another downgrade is possible in the next 12 to 18 months.

U.S. government officials had been bracing for a downgrade.

CNBC's John Harwood reported that S&P told the federal government at 1:30 p.m. ET Friday that it was preparing to downgrade the country's rating. But Harwood reported that after U.S. officials pointed out an error in how S&P computed the ratio of U.S. debt to the gross domestic product, S&P decided to reconsider.

A source said S&P's calculations were off by "trillions," CNBC reported.

The earlier reports said the main reasons likely to be cited for a U.S. downgrade by S&P included political confusion surrounding the process of hiking the debt limit and doubt that agreement would be reached on more deficit reductions.

On July 14, S&P put the government on a credit watch with negative implications, meaning there was at least a one in two chance the U.S.’s long-term debt would be downgraded within 90 days.

After Congress reached a deal this week on budget cuts valued at about $2.1 trillion over 10 years, the other two main rating agencies reaffirmed the nation's top credit rating status for now although said they would continue to evaluate the situation. S&P never issued a comment. still has not commented.

Moody's assigned a negative outlook for U.S. sovereign debt, meaning it could still downgrade the securities, although probably not anytime soon. Moody's said there would be a risk of downgrade if there is "a weakening in fiscal discipline, a deterioration in the economic outlook or if Congress fails to adopt more deficit-reduction measures in 2013.

Another major agency, Fitch, said it would complete its review of the nation's sovereign debt rating by the end of August and did not rule out a downgrade.

Standard & Poor's had warned that the nation's credit rating would be subject to a downgrade without a credible deficit-reduction package worth $4 trillion over 10 years. The package agreed to by congressional negotiators falls well short of that mark.

A downgrade could result in higher market interest rates and could force some fund managers to sell Treasury securities. But it is unclear what the result would be if only one of the major agencies issued a downgrade.

The rating agencies have been under fire since the financial meltdown of 2008 because they often gave high ratings to bundles of mortgage-related securities that were risky and ultimately failed.