S&P downgrade and debt crisis: live 4, If Italy is downgraded 2 notches by S&P then it may get into the B bracket - the lowest investment grade category. Could this cause bond clearance house LCH Clearnet to up its margin requirements? If yes, this could cause another wave of selling Italian bonds, putting more pressure on yields... 5, The real test of market sentiment post the ratings action by S&P could come next week. On Monday France wants to sell 8.7bn euro of debt. Spain, the EFSF and Germany are also planning on selling debt. Either way, it will be a tense market open on Sunday/ Monday when European markets come back to work... 17.43 Here's our very own Jeremy Warner on the implications of a French downgrade. In his view, the loss of its AAA rating could even mean France defaults on its debt. 17.30 Hot off the press from European Council president Herman van Rompuy: The announcement comes despite a planned general strike on the same day to protest against new austerity measures. 17.24 Bruno directs me to this article on French daily Les Echos, which reports S&P cutting France and Austria (both AAA) by 1 notch, and Italy (A), Spain (AA-) and Portugal (BBB-) by 2 notches. If true, Portugal would be downgraded to non-investment grade by S&P. In other words, junk. Les Echos added that Germany, The Netherlands, Finland and Luxembourg would escape downgrades. All are AAA rated. 17.19 And Brussels correspondent Bruno Waterfield's take on Nicolas Sarkozy's reaction: 17.12 This from the Wall Street Journal on the French downgrade: Standard & Poor's Ratings Services has notified the French government of its decision to downgrade the country's credit rating, a senior French government official said Friday, a move that marks the long-awaited blow to France's international standing and knocks the country out of the top financial league of the euro zone. S&P has informed the French government that the country's cherished triple-A rating will be lowered one notch to AA+. 17.06 Europe's stock markets have closed. The FTSE 100 in London slipped 0.46pc to 5,636.64, while the CAC 40 in Paris finished down 0.1pc at 3,196.49 and the DAX 30 in Frankfurt fell 0.6pc to 6,143.08. 16.57 Any downgrades would also tarnish the credibility of the European Financial Stability Facility (EFSF), the eurozone's €440bn bail-out fund that Angela Merkel and Nicolas Sarkozy fought so hard to secure (and the one that was nearly brought down by Slovakia). If France loses its AAA rating, then Germany would be the only top-rated main backer left. The EFSF is also currently on downgrade review. In December, S&P said: Our 'AAA' long- and 'A-1+' short-term ratings on EFSF are based on (i) the unconditional, irrevocable, and timely guarantees from EFSF members (guarantor members) rated 'AAA' by Standard & Poor's that support EFSF's obligations (bonds, notes, commercial paper, debt securities, or other financing arrangements) and, (ii) the 'AAA' rated securities that constitute EFSF's liquidity reserves. Standard & Poor's has placed the 'AAA' long-term issue ratings on EFSF's guarantor members Austria, Finland, France, Germany, Luxembourg, and The Netherlands on CreditWatch negative (see "Standard & Poor's Puts Ratings On Eurozone Sovereigns On CreditWatch With Negative Implications," published on Dec. 5, 2011), indicating our view of their increased credit risks. In other words, the EFSF is only as good as its backers. 16.51 Greece has €14.435bn of debt that needs to be refinanced in March. Tick tock. 16.40 OK, here's the last two hours in a few sentences: Standard and Poor's, the ratings agency, is rumoured to downgrade several eurozone nations at around 8pm GMT. France top of the list to be cut by one notch, according to several sources. The rest of the eurozone is also on the danger list - apart from the Netherlands and Germany, which are said to keep their prized AAA ratings. S&P aren't commenting, neither are the French government. Meanwhile, talks between Greece and its creditors have broken down. S&P chatter has largely overshadowed this news, but it is clear that if the two parties do not reach accord, it will not get its next aid tranche, and Greece faces disorderly default in March. And that would be bad. 16.23 US markets are closed on Monday for the Martin Luther King holiday. Expect traders to take risk off the table, downgrades or not. Both the Dow and S&P 500 are currently trading 0.8pc lower. Traders assess their positions at the New York Stock Exchange in this file photo (Photo: AP) 16.20 All major stock markets bar Spain's IBEX index are now in the red, although the drop is more of a nervous retreat than a Jean-Claude Van Damme style dive out of danger. Angus Campbell at Capital Spreads, said: The bulls were blown out of the water today as it gradually became more apparent that rumours of credit ratings downgrades to a number of European countries were true. The fact that these rumours included France, the second biggest economy and one of the driving forces behind the whole European project made the rumours even more distasteful for investors. The downgrades are expected after European markets have closed which is why so many people rushed for the exit and so now we have almost completely wiped out the gains for 2012 that bulls seemed to have worked so hard for. There is a chance however that we might see a case of "sell the rumour buy the fact" as indices have bounced off their lows and its not as if investors haven't already been made aware that Europe's countries could be downgraded. Even the likes of France had been put on credit downgrade watch by a number of the credit ratings agencies, so the sharp sell off might have been a bit of an overreaction. 16.08 More chatter: S&P are known for their late-night downgrades. The last major downgrade on America hit my inbox at around 1am. 16.01 Investors are diving for safety. While France, Italy, Spain, Belgium and Austria have all seen their ten-year borrowing costs tick up, the rumours have pushed British borrowing costs near all-time lows. Yields on ten-year gilts have fallen of 1.952pc - just off the all-time lows of 1.93pc achieved on December 30. Borrowing costs in Finland and the Netherlands have also fallen. And surprisingly, it's also a good time to be a PIG, or should I say GIP. Greece, Portugal and Ireland have also seen benchmark borrowing costs fall. 15.55 Another interesting question posed by zerohedge on Twitter: Italy is currently rated "A" by S&P. It was last downgraded in September. 15.50 French television also say France is on course for a downgrade. 15.43 A spokesman for Nicolas Sarkozy has also declined to comment. Up until today, ministers and spokesmen have been vociferous in their denials. Just this week, we had denials directly from finance minister Francois Baroin on separate rumours. Today, silence speaks volumes. 15.41 And more comments from Markit's Gavan Nolan: Germany and France are, of course, the fulcrum of the eurozone and will be the main concern. It would be a major surprise if any action was taken on Germany. France, on the other hand, is a different matter. It would be even more of a shock if it wasn't on S&P's hit list. The peripherals (excluding Greece, already CC) and possibly Belgium could also be in the firing line. All conjecture and we probably won't know until after the market close if there is any credence to the rumours. 15.37 This from Bruno Waterfield in Brussels: 15.32 Rumours about the rumours are coming thick and fast: 15.27 And it's a "no comment" from S&P on the downgrade rumours. The chap who usually deals with sovereign ratings enquiries is "travelling on business" this week. Perhaps he booked a ticket to the Continent. 15.22 Greece's bank creditors are in no mood for a haircut. The Institute of International Finance (IIF), which represents the banks, said talks with the government have "paused for reflection" after discussions failed to produce a "constructive consolidated response by all parties." In a statement, the IIF added it was ready to "re-engage constructively with the private sector." 15.11 Reuters is now reporting that Slovakia is one of the countries in line for a downgrade. 15.05 Follow Louise Armitstead on Twitter for more market musings and breaking news. Of course, we'll be here too. It could be a long evening. 15.03 While our own chief business correspondent Louise Armitstead highlights this from WSJ's Charles Forelle: 15.00 Interesting observation from FT Markets editor Christopher Adams: 14.42 Just to recap what all this downgrade talk means: Back in December, S&P put 15 out of 17 eurozone nations on "credit-watch negative." In other words - it was reviewing these countries' creditworthiness. Of the other two countries, Cyprus is already on "credit watch negative," while Greece is considered "junk" by S&P. There are six eurozone countries currently AAA rated. These are Austria, Luxembourg, Germany, France, The Netherlands and Finland. France is top of the list to lose its prized AAA rating. Fitch, which is carrying out a similar review, said this week that France would not lose its AAA rating before the end of 2013 unless there were "important shocks." Sources told Reuters that Germany and The Netherlands are not in line for downgrades. Countries that are downgraded face higher borrowing costs, as they are deemed more risky by markets. Any rating of "BB" or below from S&P means a country's debt is considered "non-investment grade" - or junk. 14.35 The Netherlands is also in the clear from S&P, according to a source quoted by Reuters. 14.31 US markets opened lower on the news. The Dow Jones industrial average fell 0.3pc on open, while the broader S&P 500 index fell 0.5pc. European shares also moved lower. The FTSE 100 in London fell an extra 30 points on the rumours, while the CAC 40 in Paris shed an additional 25 points and the FTSE Mib in Milan dropped 100 points. The euro slumped 0.8pc to $1.2710, near a 16-month low. 14.05 Italian, Spanish and Greek 10-year bond yields have spiked on worries that the Greek debt write-off won't be voluntary. Italian/German 10-year bond yield spread widens back above 500 basis points. Greece will next week continue talks with bank creditors for a debt writedown or "haircut" vital to keeping the crisis-hit country afloat, a government official has said. 14.00 We are hearing reports that several eurozone countries could face "imminent" downgrade by S&P. Ratings agency declines to comment. Source says Germany not one of the downgrades. 13.44 Let's bring you up to date with the latest corporate news. The UK's biggest fresh milk supplier Robert Wiseman Dairies has said it is in talks to be bought out by German-owned yoghurt maker Muller Dairy. EDF has bid for BG's stake in Indian gas utility. 13.40 The EU office in Rome has been evacuated after a suspicious package was found. No more details as yet. US trade deficit has widened 10.4pc in November to $47.8bn - bigger than estimates and a five-mont high. Export prices -0.5pc in December versus +0.1pc in November. Import prices -0.1pc in December versus +0.8pc in November. 13.20 Tesco's UK operations chief Noel "Bob" Robbins sold stock just over a week before a profit warning sent shares in the world's third-biggest retailer plunging, a regulatory filing shows. He sold 50,000 shares at 404.51p apiece on January 4, netting around £202,000. 13.02 Nick Clegg is in Ireland today meeting Irish PM Enda Kenny and Scotland's Alex Salmond. Earlier, Mr Kenny said a second bailout for Ireland was not needed. They moved on to the transaction tax, which the Irish PM said his country couldn't accept if London was not also involved. Mr Clegg then warned that the FTT would lead to EU job losses. 12.27 Some good news for the UK! Aon, a provider of risk management and HR solutions, has announced it will move its corporate headquarters to London, to the new Cheesegrater skyscraper. In a statement, the company - which sponsors Manchester United Football Club - said the move "provides greater access to emerging markets and takes better advantage of the strategic proximity to Lloyd's and the London market as one of the key international hubs of insurance and risk brokerage." 12.14 Former IMF chief Dominique Strauss-Kahn has said he had no way of knowing he was sleeping with prostitutes because "the women were naked at the time." The defence came amid allegations his mobile phone records showed he had relationships with 10 call girls. This could help police determine whether Mr Strauss-Kahn was aware that the women he had sex with had been paid to do so. Sleeping with prostitutes is legal in France if the girls are over 18 but some warn Mr Strauss-Kahn could face charges if the case expands to cover graft or procuring. 12.07 JP Morgan Q4 results are out. Earnings per share 90 cents, as expected. Revenue $21.47bn versus expectations of $22.56bn. Profit of $3.7bn, compared with $4.83bn a year earlier. Bank says it is "gratified to see signs of improvement in loan demand and credit quality." 11.36 Some corporate news: Serco, the international service company, has won a contract with the UK Ministry of Defence to deploy radar technology to prevent wind farms interfering with the UK's air defence radars. The new contract is valued at £27m over two years and the total combined contract value to Serco is approximately £45m over a three-year period. 11.23 The Telegraph's Jeremy Warner has blogged on the currency problems linked Scotland's push towards independence. Monetary union between two fiscally sovereign states would eventually produce much the same problems as we've seen in the eurozone - a possibly quite severe divergence in competitiveness accompanied by a balance of payments and intra-union debt crisis. Indeed, it might well be that English regulators (for indeed they would be after separation) would be forced to impose controls on Scottish lending by UK banks to prevent just such a crisis developing, quite a challenge given that the two largest UK banks are Scottish domiciled. 11.16 Quick update on the markets. FTSE 100 is up 0.2pc, CAC up 1pc, DAX up 0.3pc, IBEX up 1pc and MIB up 0.6pc. Chris Beauchamp, market analyst at IG Index, said: As the sun rises on the final day of the trading week, the FTSE 100 is up slightly, but the atmosphere remains nervous. For the second successive day, the morning focus was on a debt auction by one of the eurozone's more troublesome members. Today, Italy sold its debt. The auction saw yields fall, prompting the bulls to snort approvingly, but demand also dropped, which gave bears something to roar about. Ultimately, the market remained somewhat unimpressed, with the FTSE 100 remaining some distance from its early morning highs. Today's blow-up is engineer Invensys, rudely shoved out of the leading index by Glencore in May last year, down 23pc after a profit warning. 11.08 Germany doesn't support giving the European Central Bank a role in backing the euro area's permanent rescue fund, said Steffen Seibert, Chancellor Angela Merkel's chief spokesman. Meanwhile, Finance Ministry spokesman Martin Kotthaus said that Germany's goal remains to introduce a financial transaction tax in all 27 European Union countries. The federal government's position is completely unchanged as far as the ECB is concerned. 11.04 Meanwhile, the UK's yields are also looking good. Ten-year bond yields have fallen below 2pc. 10.38 Italy has sold €4.75bn of three-year bonds at a yield of 4.83pc. Yield falls from 5.62pc, but bid to cover only 1.22. 10.06 More figures out. Eurozone trade balance +€6.9bn versus expected €0.5bn. 10.03 Greek PM Lucas Papademos has said his country's central problem is a loss of competitiveness and not just labour costs. He says they need to get growth going and that the illegal fuel trade is a problem. 10.00 Here's the Telegraph's Banking Editor Harry Wilson: 09.55 Lloyds Bank has said that its chief executive Antonio Horta-Osorio has declined to take his bonus for 2011. Horta-Osorio said that a bonus entitlement should reflect the performance of the bank and the "tough financial circumstances that many people are facing." He adds that his leave of absence due to sleep deprivation had an impact on both inside and outside the performance of the bank, including for shareholders. Spain banks' ECB loans hit highest level since July 2010, says central bank. The ECB lent Spanish lenders €118.86bn in December, up 21.3pc from November. Meanwhile, Spain's economic secretary has said the government expects the economy to contract in Q4 and Q1. 09.35 The Swiss stock exchange is due to open at 11am after a technical hitch this morning. 09.32 UK PPI output prices month-on-month fall 0.1pc against a flat predicition. Year-on-year they rose 3pc against expectations of a 3.2pc rise. Input prices month-on-month fell 0.6pc versus expected fall of 0.2pc. Year-on-year rose 8.7pc versus expected 9.1pc. Howard Archer at IHS Global Insight said: This indicates that weakened activity is causing manufacturers to become more circumspect in their pricing while softer input prices is reducing the pressure on companies to raise their prices to protect their margins. The data support belief that consumer price inflation is headed down sharply over the coming months, and fuels already strong belief that the BoE will enact at least £50bn more Quantitative Easing in February. 09.25 Further to that BDO story (see 09.08), the National Institute of Economic and Social Research has said British economy just about scraped growth in the fourth quarter of 2011. NIESR estimated gross domestic product grew by 0.1pc in the last three months of the year, compared with the third quarter. 09.23 Spanish HICP inflation has eased from an annual rate of +2.9pc in November to +2.4pc in December. 09.08 The UK is "teetering on the brink" of recession, according to new data from accountancy firm BDO. The organisation's business Output Index dropped for the seventh consecutive month to 91.4 in December, from 92.5 in November. The index - which measures turnover expectations three months ahead - has now remained below the crucial 95 mark, which indicates growth, since July 2011. At the same time, the firm's Optimism Index - which predicts business confidence in two quarters' time - dropped to 91.5 in December from 92.5 in November. The company said: To arrest the forecasted slump, we urge the Bank of England to consider a further round of quantitative easing, and we encourage the banks to continue to step up their lending to UK businesses. We also want to see the Government introducing measures in 2012 that encourage private sector investment in infrastructure. 09.01 Ahead of an Italian bond auction of three-year debt at 10.15am, two-year yields have slid below 4pc, three year at 4.8pc, while10-year yields are now below 6.5pc. 08.34 The start of trading on the Swiss stock exchange has been delayed due to unspecified technical problems, SIX Swiss Exchange has said. Meanwhile, Swiss bank UBS has said: We believe there is a strong chance that sovereign debt markets have begun a short-lived but possibly powerful risk rally. 08.26 Meanwhile, in the corporate world, Tesco's performance in the markets this morning has been a huge anti-climax. The shares are up just 0.1pc. Remember, they fell 16pc yesterday after a profits warning. 08.21 ECB deposits have hit yet another record high - €489.906bn. For a bigger version of this graph, click the right-hand-side of the main picture at the top of this blog 08.19 Actor Paul Bettany is currently starring in financial film Margin Call - set in New York on the eve of the 2008 crash and which the New York Times called "the best movie ever made about Wall Street" (Michael Douglas won't be happy about that). Anyway, I thought actors did tons of research before they filmed their scenes - not so apprently. Bettany says: I'm just a blond actor. I'm not someone who should be venturing their opinion about Wall Street. Hmmm, so glad you gave us an insight, Mr Bettany. 08.00 European markets are open. FTSE 100 up 0.7pc, CAC up 0.9pc, DAX up 1pc, IBEX up 0.9pc, MIB up 1.3pc. Markets reacting to gains in Asia on fresh eurozone hopes. Invensys shares have fallen 26pc after a profits warning ths morning (see 7.44). 07.55 Have a quick look back to 7.16 and the news that Apple has closed some its Chinese stores after fans fought with security and threw eggs at an official store. Here's a video of the chaos: 07.51 Great piece on the Telegraph site today by Emma Rowley on miners expecting the gold price to hit $2,000 this year: The overwhelming majority (80pc) of gold mining executives think the price will keep climbing in 2012, with just 6pc anticipating a fall, a survey by PwC found. Last year, mounting fears over the eurozone crisis helped the "safe haven" metal hit $1,900 in September. 07.48 We are hearing rumours that the IMF has warned the Greek government that a 50pc debt writedown may not be enough. 07.44 Let's bring you up to do date with breaking corporate news. Sales at fashion retailer Ted Baker rose 15.7pc over Christmas. It is now prearing for expansion to Tokyo and Beijing. Technology company Invensys has signed signalling framework contracts with Network Rail in the Scotland, Central West and Wales and West areas. But the company expects reported operating profit for the full year "to be significantly below last year."