U.S. stocks, dollar tumble on credit worries

By Herbert Lash

NEW YORK (Reuters) - Stocks sold off on Wall Street, the dollar tumbled, and U.S. government debt prices slumped on Thursday on fears the growing U.S. budget deficit could lead to a credit rating downgrade after Britain got a wake-up call.

The simultaneous decline in stocks, bonds and the U.S. dollar marked a departure from a recent pattern in which investors have taken refuge in bonds and the dollar when stocks have fallen and vice versa.

Some investors read it as a sign of growing worry over the amount of debt the U.S. government is issuing to counter the recession.

U.S. Treasury debt prices fell on Thursday after the government said it would sell $101 billion of new notes next week, adding to worries whether investors can digest all the debt the government is issuing to pay for its financial bailouts.

The U.S. dollar plunged to its lowest level this year against major currencies and gold rose above $950 an ounce to nearly a two-month high as investors flocked to bullion as a safe haven.

The euro gained 1.0 percent to trade at $1.3899, after hitting $1.3923, its highest level since early January, while the dollar briefly dipped below 94 yen, a two-month low, before clawing its way back to 94.25 yen, still down 0.6 percent.

"People are asking, if the UK is having problems like this then maybe U.S. sovereign debt is also not as solid," said David Dietze, chief investment strategist at Point View Financial Services in Summit, New Jersey.

Bill Gross, the co-chief investment officer of fixed-income fund Pacific Investment Management Co, said he believed the United States would be eventually lose its AAA rating, but not for three to four years.