Stock Futures Plunge on U.S. Debt Downgrade

NEW YORK (TheStreet) -- Stock futures were pointing to a steeply lower open Monday as investors sought safety after Standard & Poor's downgraded the credit rating of the U.S. for the first time.

Futures for the Dow Jones Industrial Average were down by 242 points, or 233 points below fair value, at 11,160. Futures for the S&P 500 were lower by 28 points, or 26 points below fair value, at 1170, and Nasdaq futures were off by 51 points, or 56 points below fair value.

Stocks had a whipsaw session Friday before settling in mixed territory after news that Europe's central bank may start buying Italian and Spanish bonds eased fears that the region's debt crisis could spiral out of control.

Rating agency Standard & Poor's cut its rating on the U.S. government's debt to AA+ from AAA with a negative outlook after the close of trading on Friday. Treasury Secretary Timothy Geithner said the move showed "terrible judgment." The ratings downgrade capped a week that saw U.S. equities lose 7% amid concerns about the global growth outlook.

"Markets are trading off pretty hard," said Alan Gayle, senior investment strategist at RidgeWorth Investments. "It's a very emotional response. Trying to step into the teeth of this response would present some risks."

"At the end of the day, it's about the trends in economic growth. Few investors think the U.S. will actually default on its debt. Right now, economic data is disappointing and seems to have lost some momentum," he said.

Gold prices shot to an all-time high, rising above $1,700 an ounce as the uncertain climate triggered a flight to quality. Gold for December delivery was up by $53 at $1,704.80 an ounce.

The benchmark 10-year Treasury rose 21/32, diluting the yield to 2.492%. The dollar strengthened against a basket of currencies, with the dollar index up by 0.2%.

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Oil prices, meanwhile, sank to below $84 a barrel. The September crude oil contract was shedding $3.83 to trade at $83.05 a barrel.

News that the European Central Bank will "actively implement" its bond-purchase purchase program to stem fears that Italy and Spain will be unable to repay their debts may have be capping some weakness in global markets.

The FTSE in London was dropping 1.8%, and the DAX in Frankfurt was losing 2.4%. Hong Kong's Hang Seng declined 2.2%, and Japan's Nikkei also closed 2.2% lower.

In corporate news, insurer AIG(AIG) plans to sue Bank of America(BAC) for losses on more than hundreds of mortgage-backed securities, according to a New York Times report. The suit seeks to recover more than $10 billion in losses on $28 billion of investments. AIG's stock was losing 6% to $23.59 in premarket trading and Bank of America's stock was down 8% at $7.52.

Rio Tinto(RIO) and Japan's Mitsubishi offered to buy the shares that they don't already own in Australia's Coal & Allied Industries on Monday. The offer of 122 Australian dollars ($126.50) a share values Coal & Allied -- Australia's sixth-largest coal mine -- at 10.6 billion Australian dollars ($11 billion). Rio Tinto is currently Coal & Allied's largest shareholder with a 75.71% stake. Mitsubishi holds 10.2%. Rio Tinto shares were down 4.5% at $56.55 in early trading.

Reinsurer Transatlantic Holdings(TRH) announced Sunday that it received a $3.25 billion buyout offer from National Indemnity, a unit of Warren Buffet's Berkshire Hathaway(BRK.A). The offer of $52 for each outstanding share represents a 15% premium to Transatlantic's Friday closing price. Shares of Transatlantic Holdings were gaining 11% to $50.20 during the premarket session and Berkshire's B shares were losing 1.8% at $70.

Forty-five thousand Verizon(VZ) workers from Massachusetts to Washington, D.C., went on strike Sunday after negotiations failed to yield a new labor contract for more than one-fifth of the company's workforce. Verizon's stock was losing 3% to $34 ahead of Monday's opening bell.

There are no economic releases scheduled for release during Monday's session.

-- Written by Melinda Peer in New York.

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