* Wall St edges down, dollar gains on Europe debt worries
* Treasuries prices sink after poor 5-year note auction
* Euro at weakest level since early May 2009
By Walter Brandimarte
NEW YORK, March 24 The euro sank to a 10-month low against the dollar and U.S. stocks fell on Wednesday after a downgrade of Portugal's credit rating raised worries about Europe's growing debt burden.
Commodity prices fell as the dollar gained ground, with gold at a six-week low. Prices of U.S. Treasuries, which typically are a safe haven when risk appetite ebbs, declined as investors sold bonds on worries about a massive supply of new debt.
Fitch Ratings cut Portugal's sovereign credit rating by one notch to AA-minus and warned of a possible further downgrade. [ID:nLDE62N193]
Ongoing speculation that debt-stricken Greece may have a difficult time securing aid at a European Union summit that begins on Thursday highlighted problems facing the euro zone, and helped push the euro to a lifetime low against the Swiss franc.
"I think this is just the beginning of a long process of downgrading a number of major governments until they put their debt in order," said Rick Meckler, president of investment firm LibertyView Capital Management in New York.
"It's a negative because it sends the message that investments that were previously thought to be safe could have problems."
On Wall Street, stocks fell as the cut in Portugal's debt rating prompted profit-taking after a recent rally that had driven the Dow industrials and benchmark S&P 500 to 18-month highs on Tuesday.
The Dow Jones industrial average .DJI declined 39.91 points, or 0.37 percent, to 10,848.92, while the Standard & Poor's 500 Index .SPX lost 5.16 points, or 0.44 percent, to 1,169.01. The Nasdaq Composite Index .IXIC was down 14.50 points, or 0.60 percent, at 2,400.74.
"I think people are looking for a reason to take some profits, given the overbought nature, and the much stronger dollar over the Greece concerns and Portugals's debt being downgraded is providing that reason today," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.
Wednesday's data sent mixed signals about the U.S. economy, with new home sales unexpectedly falling to a record low in February. In contrast, new orders for durable goods, which include long-lasting manufactured products such as washing machines, rose for the third straight month in February. Inventories of durable goods posted their biggest gain since December 2008. [ID:nN24144679]
The MSCI all-country world stock index .MIWD00000PUS lost 0.6 percent. In Europe, the FTSEurofirst 300 .FTEU3 index of top shares seesawed during most of the session to end practically unchanged. It closed 0.01 percent higher after earlier hitting its highest level since October 2008.
"The market was increasingly overbought, so Portugal is a perfect excuse to book some profits," said Kenneth Broux, market economist at Lloyds TSB in London.
Concerns about the fiscal situation of the euro zone weighed on the euro and created safe-haven demand for the dollar, which climbed to its highest level since May last year against a basket of currencies.
The dollar index, which tracks the performance of the greenback versus six other major currencies, was up 1.1 percent at 81.797 .DXY.
The euro EUR= was 1.15 percent at $1.3343. Following the Fitch announcement, the euro hit its weakest level against the greenback since early May 2009.
"Sovereign credit worries in Europe and Japan are leading to some general risk aversion," said Michael Malpede, a market analyst at Easy Forex in Chicago.
Analysts said the euro's weakness, despite a stronger-than-expected reading of the Ifo Institute's survey of German business sentiment, suggested strong downward momentum in the common European currency. [ID:nBAE003750]
The euro traded flat versus the Swiss franc at 1.4270 francs EURCHF= after hitting a record low at 1.4233, according to Reuters data.
Against the Japanese yen, the dollar JPY= was up 1.83 percent at 92.06.
A stronger dollar sent commodity prices down. U.S. crude oil prices CLc1 fell $1.28, or 1.56 percent, to $80.63 per barrel, while spot gold XAU= fell as low as $1,088.05 an ounce, its weakest since Feb. 12.
Oil prices also fell after government data showed a larger-than-expected increase in U.S. crude stocks last week.
Increased aversion to risk did not translate into demand for U.S. Treasuries, though. Bond prices fell sharply, sending benchmark 10-year yields to their highest in a month, on concerns about a large government debt issuance ahead.
A $42 billion auction of five-year U.S. Treasury notes drew poor investor demand, increasing concerns about Thursday's auction of $32 billion in seven-year notes.
The benchmark 10-year U.S. Treasury note US10YT=RR fell 37/32 in price, with the yield at 3.8312 percent. The 30-year bond US30YT=RR lost 58/32, sending the yield to 4.7198 percent. (Additional reporting by Leah Schnurr and Vivianne Rodrigues; Editing by Leslie Adler)