S&P's support for Greece buoys world markets, euro

On Wall Street, the Dow Jones industrial average was up 22.45 points, or 0.2 percent, at 10,664.60 around midday New York time while the broader Standard & Poor’s 500 index rose 5.1 points, or 0.4 percent, to 1,155.61.

Stocks had been trading modestly higher for most of the day after the 16 countries that share the euro agreed to help Greece with loans — if needed.

Sentiment was further buoyed the news that Greece had avoided a downgrade from Standard & Poor’s.

In a statement, the agency said it was taking Greece off so-called credit watch. That means the agency is not thinking about downgrading the country’s BBB+ credit rating at the moment — to the relief of the Greek government as it tries to plug its deficit by tapping the international bond markets for cash.

The agency said the Greek government’s package of measures was "appropriate” to achieve its target of reducing the budget deficit by a huge four percentage points this year from 12.7 percent of the country’s national income.

However, it slapped a longer-term negative outlook on Greece as it cautioned about the government’s ability to sustain its reform momentum past this year.

"We view the government’s fiscal consolidation program as supportive of the ratings at their current level, hence our rating affirmation,” said Standard & Poor’s credit analyst Marko Mrsnik.

"Despite the new measures, we think it will be difficult for Greece to comply fully with its planned consolidation path...if it does not implement additional measures in the coming years,” Mrsnik added.

Despite longer-term worries, the markets certainly breathed a sigh of relief that Greece was not facing an imminent downgrade, which could have reignited market fears that the country might default on its debts without massive assistance from its partners in the eurozone — Greece has to roll over around euro54 billion of debt this year, including euro20 billion in the next couple of months, and wants to be able to tap the bond markets for cash at cheaper rates.

Following S&P’s statement, the euro shot up to a session high against the dollar. By late afternoon London time, the euro was 0.7 percent higher at $1.3763, just shy of its day high of $1.3771.

Despite S&P’s near-term assessment, analysts agree with the rating agency that neither Greece nor the eurozone are out of the woods yet, especially as the crisis surrounding Greece’s debt position has exposed a deep vulnerability at the heart of the single currency project — the lack of proper budgetary controls.

In addition, there’s skepticism in the markets about whether the Greek government can push through its plan to reduce the budget deficit by four percentage points this year alone to 8.7 percent of the country’s national income, given likely social unrest as wages and state benefits effectively decline.

"This is where politics enters the field of economics and why there is likely to be a sharp rise in social and political discontent,” said Neil Mackinnon, global macro strategist at VTB Capital.

The main event later will be the outcome of the U.S. Federal Reserve’s latest policy meeting. Wall Street is not expected to move too much before the policy statement due at 1815 GMT (2 p.m. EST).

Though no one thinks there will be any change in the benchmark Fed funds rate from the current historic low of 0-0.25 percent, investors will be on the lookout for any changes in the statement accompanying the rate decision.

"There is no chance of a rate change but there is a desire to make tiny changes to signal a tortoise-like move towards normality,” said Kit Juckes, chief economist at ECU Group. "Any change is probably dollar-positive.”

Japan’s central bank is also in focus — while it is expected to maintain its benchmark interest rate at 0.1 percent Wednesday, there’s growing speculation it will ease policy in other ways, possibly by expanding loan programs and other steps to keep money cheap and available as the world’s second-largest economy heals.

Earlier, Tokyo’s Nikkei 225 stock average fell 30.27 points, or 0.3 percent, to 10,721.71, while Hong Kong’s Hang Seng lost 56.17 points, or 0.3 percent, to 21,022.93. South Korea’s Kospi was off 1.49, or 0.1 percent, to 1,648.01.

Elsewhere, Shanghai’s market rose 0.5 percent and Australia’s was up 0.3 percent.

Oil prices pushed higher again ahead of the latest meeting of the Opec oil cartel, with benchmark crude for April delivery up $2.16 at $81.96 a barrel.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.