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Bank Downgrades in U.S. Prove Mistaken as Credit Risks Wane

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Moody’s Investors Service suffered a downgrade of its own as markets responded to the company’s rating cuts of 15 of the world’s largest banks by bidding up the value of their stocks and bonds.

Shares of 12 of the firms affected by yesterday’s action rose as of 11:38 a.m. in New York, and the cost to protect Morgan Stanley debt against losses dropped to the lowest in more than seven weeks, according to data compiled by Bloomberg, after the bank was cut two levels rather than a threatened three grades. Credit-default swaps tied to Bank of America Corp., which was lowered to within two levels of junk along with Citigroup Inc., also improved. The Bloomberg Europe Banks and Financial Services Index added as much as 1.5 percent.