Portugal’s credit rating has been downgraded from AA to AA- by leading credit rating agency Fitch over concerns about its high levels of debt.

Earlier this month, Portugal passed an austerity budget aimed at cutting its budget deficit.

The downgrade heightened concerns about the health of some of Europe’s heavily indebted economies, forcing the euro lower against the dollar and the pound.

The euro slid against the dollar to its lowest point since May 2009.

It dropped 1.5 cents, or 1.1%, to $1.3346. Against the pound, the euro fell 0.2 pence to 89.55p.

The downgrade also sent major European stock markets into negative territory.

European impact

“A sizeable fiscal shock against a backdrop of relative macroeconomic and structural weaknesses has reduced Portugal’s creditworthiness,” said Douglas Renwick from Fitch Ratings.

Although the agency said Portugal’s austerity budget was “credible”, it said the government would need “to implement sizeable consolidation measures from next year”, as well as reverse stimulus measures this year, in order to get its debt levels under control.

The Portuguese Minister of Finance, Teixeira dos Santos, said it was key to maintain efforts to cut the budget deficit in order to differentiate the country from Greece.

“I am worried because we know that markets overshoot sometimes in their reactions,” he said. “The risk exists more… #mce_temp_url#

By STEPHEN BERNARD and TIM PARADIS (AP)

NEW YORK — Investors are starting to believe that the stock market is on the verge of another big rally.

The Dow Jones industrials rose 103 points Tuesday, their biggest point gain in five weeks. The day’s economic news was tepid as the National Association of Realtors reported a drop in homes sales last month that wasn’t as steep as forecast. But analysts said many investors, after seeing the Dow rising 15 out of the past 18 days, grew afraid of missing out on further gains.

The report on housing was typical of recent economic numbers that have been somewhat better than expected but still point to a weak economy. Sales of previously occupied homes fell 0.6 percent last month to an annual rate of 5.02 million. Analysts expected sales would fall 1 percent to 5 million units, according to Thomson Reuters.

For now, the sales numbers aren’t disrupting hopes that the economy can recover even if there is only a slow stabilizing in the housing market. The Commerce Department is expected to report new home sales for February on Wednesday. A month ago, investors shrugged off an 11.2 percent drop in sales of new homes.  #mce_temp_url#

It’s a game of high-stakes chicken — with thousands of New York City jobs on the line.

Mayor Michael Bloomberg released a doomsday scenario Tuesday, saying if Albany goes through with cuts to city aid he will be forced to make massive layoffs — possibly the worst in decades.

It’s a terrifying situation for people living and working in the city.  #mce_temp_url#

The pushback against federal power began under Bush, but may now be accelerating.

By Patrik Jonsson

There’s an old joke in South Carolina: Confederate President Jefferson Davis may have surrendered at the Burt-Stark mansion in Abbeville, S.C., in 1865, but the people of state Rep. Michael Pitts’s district never did.

With revolutionary die-hards behind him, Mr. Pitts has fired a warning shot across the bow of the Washington establishment. As the writer of one of 28 state “sovereignty bills” – one even calls for outright dissolution of the Union if Washington doesn’t rein itself in – Pitts is at the forefront of a states’ rights revival, reasserting their say on everything from stem cell research to the Second Amendment.

“Washington can be a bully, but there’s evidence right now that there are people willing to resist our bully,” said Pitts, by phone from the state capitol of Columbia.

Just as California under President Bush asserted itself on issues ranging from gun control to medical marijuana, a motley cohort of states – from South Carolina to New Hampshire, from Washington State to Oklahoma – are presenting a foil for President Obama’s national ambitions. And they’re laying the groundwork for a political standoff over the 10th Amendment, which cedes all power not granted to Washington to the people.

The movement’s success will largely depend on whether Washington sees these legislative insurgents as serious – or, as Pitts puts it, as just “a bunch of rednecks.”

“There’s a lot of frustration when someone quite distant from you forces you to do something you don’t want to do,” says Steve Smith, director of the Weidenbaum Center on the Economy, Government and Public Policy at Washington University in D.C. “That’s the root cause, and it ends up being rationalized in constitutional terms.”  more … #mce_temp_url#

By Joyce Koh

March 21 (Bloomberg) — Advanced economies face “acute” challenges in tackling high public debt, and unwinding existing stimulus measures will not come close to bringing deficits back to prudent levels, said John Lipsky, first deputy managing director of the International Monetary Fund.

All G7 countries, except Canada and Germany, will have debt-to-GDP ratios close to or exceeding 100 percent by 2014, Lipsky said in a speech today at the China Development Forum in Beijing. Already this year, the average ratio in advanced economies is expected to reach the levels seen in 1950, after World War II, he said. The government debt ratio in some emerging market nations had also reached a “worrisome level.”

“This surge in government debt is occurring at a time when pressure from rising health and pension spending is building up,” Lipsky said. Stimulus measures account for about one-tenth of the projected debt increase, and rolling them back won’t be enough to bring deficits and debt ratios back to prudent levels.

Rising public debt could lead governments to seek to eliminate it through inflation or even default if they fail to carry out fiscal measures in time,Mohamed A. El-Erian, co-chief investment officer at Pacific Investment Management Co. warned earlier this month. Nassim Nicholas Taleb, author of “The Black Swan,” a book arguing that unforeseen events can roil markets, said March 12 he is concerned about hyperinflation as governments around the world take on more debt and print money.  #mce_temp_url#

By CATHERINE RAMPELL

When Josh Beckett pitches for the Red Sox at Yankee Stadium, New York collects income tax on the portion of his salary that he earned in New York State.

But what about a Boston Scientific sales representative who comes to New York to pitch medical products to a new client? New York has decided it wants a slice of that paycheck, too.

Anyone who crosses a state border for work — to make a sales call, say, or meet with a client or do a road show on Wall Street — probably owes income taxes in that state.

If you live in Boston but spend one out of 250 workdays this year in New York, you owe New York income taxes on 1/250th of your salary. … more #mce_temp_url#

By AARON LUCCHETTI

Buyer’s remorse has hit some cities and states that did deals with Wall Street in different times.

Hundreds of U.S. municipalities are losing money on interest-rate bets they made during the bull market in hopes of protecting themselves from higher rates. The deals backfired when rates fell, shriveling the sums paid to municipalities. Now some are criticizing Wall Street and trying to exit the contracts.

The Los Angeles city council approved a measure this month instructing city officials to try to renegotiate an interest-rate deal withBank of New York Mellon Corp. and Belgian-French bank Dexia SA. The pact, reached in 2006 to help fund the city’s wastewater system, currently is costing the city about $20 million a year. The banks declined to say how they would respond to a request to renegotiate.

In Pennsylvania, 107 school districts entered into interest-rate swap agreements from October 2003 to last June. At least three have terminated them. Under one deal, the Bethlehem, Pa., school district had to pay $12.3 million to terminate a swap with J.P Morgan Chase & Co., according to state auditor general Jack Wagner. J.P. Morgan declined to comment.

State lawmakers have proposed restrictions on municipalities’ ability to use swaps. “It’s gambling with the public’s money,” Mr. Wagner said. “Elected officials are simply no match for the investment banker that’s selling the deal.”

The Service Employees International Union said Chicago, Denver, Kansas City, Mo., Philadelphia, Massachusetts, New Jersey, New York and Oregon all are in the hole on swaps agreements they made with financial firms. The required payments range from a few million dollars to more than $100 million a year, the union said.

Such deals are deepening the misery faced by state and local governments throughout the U.S., already facing their worst financial squeeze in decades because of shrinking tax revenue and stubbornly high pensions and other costs.   more #mce_temp_url#

Labour has taken 13 years of diabolical liberties with Britain … Individualism and autonomy used to be prized – now they are held in contempt, argues Simon Heffer … Britain has become increasingly authoritarian. A danger of the government having made such a mess of the economy is that one risks forgetting all the other horrors for which it is responsible. Between now and the election I shall make a point of discussing some of these other factors that an intelligent voter should want to consider before casting his or her ballot. Despite stiff competition from matters like Europe, immigration, law and order and the near-destruction of our education system, one is perhaps worse than all the others: the insidious and at times quite terrifying assault on our civil liberties. – UK Telegraph  more… #mce_temp_url#