Fitch cuts Portugal credit rating to junk status (by William L. Watts)

FRANKFURT (MarketWatch) -- Fitch Ratings on Thursday cut Portugal's sovereign credit rating to BB-plus from BBB-minus, putting the country's rating in junk status. The rating carries a negative outlook, which means a further cut is possible. "The country's large fiscal imbalances, high indebtedness across all sectors, and adverse macroeconomic outlook mean the sovereign's credit profile is no longer consistent with an investment-grade rating," Fitch said in a news release. The ratings firm said recession will make the government's deficit-cutting plan more challenging and will hurt bank asset quality, but that the government's commitment to the plan was "strong." The Portugal PSI 20 index is up 0.2% to 5,241.26, underperforming other European stock markets.

France, Germany, Italy won't give ECB orders (by William L. Watts)

FRANKFURT (MarketWatch) -- Germany, France and Italy respect the European Central Bank's independence and won't make demands on the institution as they take steps to address the euro-zone debt crisis, French President Nicolas Sarkozy told reporters after meeting with German Chancellor Angela Merkel and Italian Prime Minister Mario Monti in Strasbourg, France. Sarkozy said Germany and France would propose treaty changes aimed at strengthening sanctions against members that violate euro-zone rules before a Dec. 9 summit. Merkel again criticized calls for the issuance of euro bonds, saying that common interest rates for all euro-zone borrowers would send the "wrong signal." Monti affirmed that he would stick to the previous government's plan to balance Italy's budget by 2013.

German Nov. Ifo business confidence index (unexpectedly) rises (by William L. Watts )

FRANKFURT (MarketWatch) -- The Ifo Institute on Thursday said its November index of German business confidence unexpectedly rose to 106.6 from 106.4 in October, ending a four-month streak of declines. Economists had forecast the index to fall to 105.1. The Munich-based institute's current conditions index was unchanged at 116.7, while the expectations index, which measures attitudes toward business prospects over the next six months, rose to 97.3 from 97.0. "The German economy is still performing relatively well despite the international turmoil," said Ifo President Hans-Werner Sinn. The index is based on around 7,000 monthly survey responses from frims in the manufacturing, construction, wholesale and retail sectors, the institute said.

Italian 10-year bond yield edges above 7% ( 5YR_ITA 10YR_ITA EURUSD ) (by William L. Watts)

FRANKFURT (MarketWatch) -- Italy's 10-year government bond yield edged above 7% again on Thursday, highlighting worries about the third-largest euro-zone economy's ability to meet its funding needs. The 10-year yield (it:10yr_ita) rose 18 basis points to 7.01%, according to FactSet Research. Italy's yield curve inverted this week, a development widely viewed as a sign of distress in credit markets. Italy's five-year bond yield (it:5yr_ita) rose 31 basis points to 7.38%. The euro (cur_eurusd) edged lower versus the dollar to trade at $1.3327, down 0.2% from Wednesday.