NEW YORK U.S. and European stocks were little changed on Tuesday after S&P's downgrade warning to 15 euro nations, though analysts expressed a cautious hope the move would spur leaders into more decisive action.
However, such optimism remained fragile and the euro surrendered earlier gains against the dollar. Jitters also halted a six-session run for global stocks with the MSCI world equity index down 0.9 percent.
Standard & Poor's warned late on Monday it could cut credit ratings across the euro zone, underscoring just what is at stake ahead of a key summit this week. It could also help Germany and France force through proposed treaty changes.
There were other signs of nervousness with banks increasingly reluctant to lend to each other. The spread between three-month euro Libor rates and overnight indexed swap rates -- an indicator of financial stress - stood at 92 basis points -- near its highest in nearly three years hit on December 1 at 93 bps.
The timing of S&P's announcement and the inclusion of Europe's economic powerhouse Germany among the 15 countries facing a ratings cut has put the focus firmly on the need for the next EU summit to deliver.
"There's an idea the S&P warning is likely to push the EU to work harder at solving its debt crisis," said Rick Meckler, president of investment firm LibertyView Capital Management in New York.
"It may have the impact of pushing forward the solution without having to be an actual problem to the market."
A downgrade could automatically require some funds to sell bonds of affected states, making those countries' borrowing costs rise still further.
The Dow Jones industrial average edged up 11.58 points, or 0.10 percent, at 12,109.41. The Standard & Poor's 500 Index slipped 1.89 points, or 0.15 percent, to 1,255.19. The Nasdaq Composite Index was off 3.41 points, or 0.13 percent, to 2,652.35.
European stocks as measured by the FTSEurofirst 300 were down 0.4 percent, off from a five-week high struck on Monday.
The euro , which initially moved lower against the U.S. dollar, was also supported by a surprise jump in German industrial orders, that suggested unexpected resilience in Germany's economy.
The euro was down 0.3 percent on the day at $1.3365, with the session low at $1.3332, according to Reuters data.
It had touched a high of $1.3427 after German industrial orders for October posted their strongest rise since March 2010.
"S&P generally does not inform us of anything the markets have not already figured out," said Jeffrey H. Bergstrand, a finance professor at the University of Notre Dame's Mendoza College of Business.
"This will impact the markets a little, but only in a transitory manner. I expect some sell off of the euro Tuesday, but little sustained impact."
ECB RATE CUT EYED
The EU said the euro zone's economy barely grew in the third quarter, giving grounds for the European Central Bank to cut rates later this week.
A Reuters survey of 73 analysts showed a 60 percent chance the ECB will cut rates by 25 basis points to a record low of 1.0 percent on Thursday.
The ECB is also likely to offer ultra-long liquidity operations to support banks, while leaving the door open to further measures to fight Europe's debt crisis if governments agree fiscal reforms, the survey showed.
(Additional reporting by Richard Hubbard in London, Rodrigo Campos in New York; Editing by Theodore d'Afflisio)
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