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Global markets react to downgrade of U.S. credit rating

By the CNN Wire Staff
All eyes will be on the New York Stock Exchange and other markets as they open over the next 24 hours.
All eyes will be on the New York Stock Exchange and other markets as they open over the next 24 hours.
  • NEW: G-7 nations will hold a conference call to discuss the downgraded rating
  • Shares dip across the Middle East as markets open
  • Israel's Tel Aviv 25 index ends the trading day down 6.99%
  • The Dubai Financial Market (DFM) General Index falls 3.7%

(CNN) -- Standard & Poor's move lowering the U.S. credit rating from AAA to AA+ shook global markets over the weekend as traders reacted to the news.

Shares dipped across the Middle East Sunday as the region's exchanges were among the first global markets to open since the historic downgrade.

Israel's stock market fell more than 6%, and the Tel Aviv 25 Index ended the trading day down 6.99%.

The Dubai Financial Market (DFM) General Index fell 3.7% on Sunday. And the General Index on the Abu Dhabi Securities Exchange lost 2.5%.

In Saudi Arabia, the Tadawul All-Share Index gained less than 0.1% after dropping nearly 5.5% Saturday.

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Analysts predict more slides as markets in other countries open Monday at the beginning of the work week there.

U.S. Treasury Secretary Tim Geithner will participate in a conference call Sunday evening with other representatives of Group of Seven industrialized nations to discuss the downgraded U.S. credit rating, a G-7 official told CNN. The G-7 nations are Canada, France, Germany, Italy, Japan, Russia, the United Kingdom and the United States.

The Bank of Israel issued a statement Sunday aimed at reassuring investors.

"So far the debt crises abroad have had a limited impact on Israel, due to its macroeconomic strength, achieved by means of adherence to fiscal discipline, among other things, in the last few years," the statement said.

But one analyst said the U.S. debt crisis may be a symptom of a larger problem Israel faces.

"The United States is in serious trouble, gradually weakening, in a major crisis," said Pinchas Landau, an independent financial advisor in Israel and the publisher of the Landau Report. "This constitutes bad news for the state of Israel. It means that the strategic, financial, military, political backup for Israel is weakening."

The move by S&P, one of the leading credit rating agencies, came Friday -- just days after Congress approved a deal to deliver $2.1 trillion in savings over the next decade. The deal followed heated debt-ceiling talks in Washington.

One person close to S&P's decision to downgrade the U.S. credit rating told CNN Saturday that the agency expects the action to have "very mild real-world impact."

Rating agencies such as S&P, Moody's and Fitch analyze risk and give debt a grade that is supposed to reflect the borrower's ability to repay its loans. The safest bets are stamped AAA. That's where the U.S. debt has stood for years.

Moody's first assigned the United States an AAA rating in 1917. Fitch and Moody's, the other two main credit ratings agencies, maintained the AAA rating for the United States after last week's debt deal, though Moody's lowered its outlook on U.S. debt to "negative."

A negative outlook indicates the possibility that Moody's could downgrade the country's sovereign credit rating within a year or two.

Stock market values fell Friday across Europe and Asia, where reaction to news of the U.S. credit downgrade was mixed.

A scathing editorial in the Chinese state-run Xinhua News Agency criticized the United States for living outside its means.

"China, the largest creditor of the world's sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets," the editorial said.

"To cure its addiction to debts, the United States has to re-establish the common sense principle that one should live within its means."

CNN's Athena Jones, Guy Azriel, Deborah Doft and John Raedler contributed to this report.