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Watchdog reviews US credit rating cut

THE Securities and Exchange Commission is reviewing the method Standard & Poor's used to cut the US credit rating and whether the firm properly protected the confidential decision.

THE Securities and Exchange Commission is reviewing the method Standard & Poor's used to cut the US credit rating and whether the firm properly protected the confidential decision.

SEC inspectors are examining S&P's policies for conducting such analyses and whether those procedures were followed when the New York-based firm downgraded the US credit rating on August 5, said a source who did not want to be identified.

S&P's downgrade of the US for the first time triggered an equity rout that wiped about $US6.8 trillion ($A6.6 trillion) from the value of global stocks from July 26 to August 11.

US officials have said the downgrade was based on a flawed analysis that overstated debt by about $US2 trillion, while S&P said the discrepancy doesn't change projections that the US debt-to-gross domestic product ratio will probably continue to rise in the next decade.

The rating company lowered the nation's AAA grade to AA after warning on July 14 that it would reduce the ranking in the absence of a credible plan to decrease deficits even if the nation's $US14.3 trillion debt limit were lifted.

The decision was at odds with the other two main ratings companies, Moody's Investors Service and Fitch Ratings, which both said the US continued to deserve the top credit rating.

SEC staff are also looking into whether certain market participants learnt of the downgrade before its announcement.

The inquiry, which is in preliminary stages, may not result in a referral to the SEC's enforcement division. Ed Sweeney, an S&P spokesman, said the firm did not discuss specific interactions it had with regulators.

"S&P takes its confidential information and securities trading policies, and the related securities regulation, very seriously," Mr Sweeney said in a statement.

"Our policies prohibit analysts or rating committee members from trading and holding securities or options of the companies or governments they rate."

Mr Sweeney said the firm had "long-standing policies and procedures in place" to protect confidential information.

Mr Sweeney also said the firm had previously indicated in a July statement that there was a chance of a downgrade.

S&P "published several reports and broadly communicated our views regarding the potential impact on other fixed-income securities," the statement said.

The rating downgrade added to concern about prospects for the global economy as Europe's debt crisis deepened.


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