By David K. Randall and Rodrigo Campos

(Reuters) – The other shoe has dropped.

Standard & Poor’s slashed the ratings of nine European nations on Friday, and reassessed the credit worthiness of most of the euro zone. Germany, the bloc’s largest economy, was spared.

France and other sovereign bonds suffered a one-notch downgrade while Portugal, Italy, Spain and Cyprus were cut by two notches.

The moves come about a month after S&P warned that high borrowing costs and political stalemates would result in downgrades in several countries that use the euro.

With Europe’s debt crisis behind much of the stock market’s recent volatility and S&P’s downgrade of U.S. debt in August, many investors considered ratings cuts in Europe all but inevitable.

Here are some steps that investors can take on how to play European debt downgrades, over both the short and long term.

NEW YORK (Reuters) – Stock index futures dipped on Friday after JPMorgan Chase reported lower quarterly profit and ahead of trade and consumer sentiment data.

JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) shares fell 3 percent to $35.75 in premarket trading after the bank said fourth-quarter profit fell as the European debt crisis weighed on trading and corporate deal-making. The Select Sector Financial SPDR exchange-traded fund (XLF.P: Quote, Profile, Research, Stock Buzz) dropped 1 percent.

“Their results show that there are major headwinds against the banking industry and it requires a strong management team to battle the headwinds,” said Rick Meckler, president of investment firm Libertyview Capital Management in New York, referring to JPMorgan Chase’s earnings.

“You may see some profit-taking from the banks today because they have run up so much heading into this.”

An index of U.S. bank shares is up 10.7 percent this year.

Further pressuring equities, Italy’s three-year debt costs fell, but demand failed to match the success of a Spanish sale the previous day, a reminder that Europe’s debt crisis is unresolved.

Futures on the S&P 500 nonetheless held near 5-month highs after rising in all eight previous sessions of the new year.

NEW YORK (Reuters) – Stock index futures rose on Thursday after well-received European sovereign debt auctions encouraged investors ahead of job market and retail sales data expected to show the economy is steadily recovering.

Italian and Spanish government bond yields fell sharply as the strong auctions were taken as an encouraging sign in their 2012 funding quests.

S&P 500 futures hit fresh 5-month highs after the auctions and after the European Central Bank left its benchmark rate at 1.0 percent, matching the lowest level ever. The decision was in line with expectations.

“The European auctions went well, yields are down in Italy and Spain, and that is giving the market a lift here,” said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

Bank stocks led gains in Europe, and U.S. peers could get a further boost. Bank of America Corp (BAC.N: Quote, Profile, Research) rose 2.6 percent to trade above $7 for the first time in more than two months.

The KBW bank index has risen 10.2 percent in the first seven sessions of the year after falling 24.6 percent in 2011.

S&P 500 futures rose 6.6 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration of the contract. Dow Jones industrial average futures gained 75 points, and Nasdaq 100 futures added 14 points.

NEW YORK (Reuters) – A pullback in stocks was expected at the open on Wednesday, a day after the Dow and S&P 500 hit five-month highs, with pressure on the euro testing the recent view that U.S. equities were decoupling from Europe.

Comments from German Chancellor Angela Merkel helped ease declines in the euro and in U.S. stock index futures. Merkel said Germany may add more funding to a permanent euro zone bailout fund.

“Yesterday’s rally was excellent,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. “A pullback here would be expected and eyes will be on the euro as we test the decoupling theory and whether it was a one-day wonder.”

The euro fell just shy of a 16-month low against the dollar after Fitch said the European Central Bank should do more to resolve the region’s debt crisis.

U.S. equities have been struggling to delink from the performance of the euro, a trend that became the norm in the last quarter of 2011 as traders fretted over possible sovereign defaults in the euro zone.

The 50-day correlation between the S&P 500 e-mini futures contract and the euro crossed the zero line this week after four months of being in positive territory, indicating they were no longer on the same path. It hit a high of 0.78 in late November, close to the 1 level that denotes a perfect correlation.

S&P 500 futures fell 3.1 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration of the contract. Dow Jones industrial average futures dropped 17 points, and Nasdaq 100 futures lost 3.5 points.

NEW YORK (Reuters) – U.S. stock index futures jumped on Tuesday after a bullish Alcoa forecast boosted the outlook for the commodities sector, signaling a stronger global economy.

Alcoa Inc (AA.N: Quote, Profile, Research, Stock Buzz) posted revenues above expectations and forecast a deficit in the aluminum market, sending its shares up 3.1 percent to $9.72 in premarket trading.

Copper prices rose 3.1 percent, the best performance since late November, as markets bet on stronger economies and more demand.

“That’s the assumption the marketplace is making this morning, for sure,” said Art Hogan, managing director of Lazard Capital Markets in New York. “This is one day, though. It’s not as if we’ve cured all our problems.”

S&P 500 futures rose 13.7 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration of the contract. Dow Jones industrial average futures gained 122 points, and Nasdaq 100 futures added 22.25 points.

Mining stocks also led European markets higher. The STOXX Europe 600 Basic Resources index rose 3.2 percent and the broad FTSEurofirst 300 .FTEU3 gained 1.8 percent.

Still, investors were cautious ahead as debt auctions in Spain and Italy later in the week test market appetite in two countries at the forefront of the euro zone debt crisis.

NEW YORK (Reuters) – Stocks were set to tick up at the open on Monday as investors focused on a European meeting intended to find ways to boost the region’s economies and tackle a debt crisis and prepared for the start of U.S. corporate earnings.

German and French leaders were meeting to discuss ways to boost growth in euro zone states struggling with a debt crisis and rising unemployment, and to finalize a deal to increase fiscal coordination within the currency union.

“It’s been difficult for U.S. investors to break from the European story despite good fundamentals here, so I think the meeting will still impact the market, whatever it is they agree to,” said Rick Meckler, president of investment firm LibertyView Capital Management in New York.

The unofficial start of earnings season kicks off when Alcoa Inc (AA.N: Quote, Profile, Research), the largest U.S. producer of aluminum, reports results after the bell.

S&P 500 fourth-quarter earnings were expected to rise 7.8 percent from a year ago, according to a Thomson Reuters forecast, down from a July 1 outlook for growth of 17.6 percent.

The lower revisions were due in part to expected fallout from the euro zone crisis and sluggish economic growth.

“Beating expectations will not be as simple as it was some quarters ago,” Meckler said, adding he expects sector bellwethers to perform well and give momentum to the market in the weeks ahead.

NEW YORK (Reuters) – Stock index futures edged higher on Monday as investors focused on a European meeting intended to find ways to boost the region’s economies and tackle a debt crisis and prepared for the start of U.S. corporate earnings.

German and French leaders were meeting to discuss ways to boost growth in euro zone states struggling with a debt crisis and rising unemployment and to finalize a deal to increase fiscal coordination within the currency union.

“It’s been difficult for U.S. investors to break from the European story despite good fundamentals here, so I think the meeting will still impact the market, whatever it is they agree to,” said Rick Meckler, president of investment firm LibertyView Capital Management in New York.

The unofficial start of earnings season kicks off when Alcoa Inc (AA.N: Quote, Profile, Research, Stock Buzz), the largest U.S. producer of aluminum, reports after the bell.

S&P 500 fourth-quarter earnings were expected to rise 7.8 percent from a year ago, according to a Thomson Reuters forecast, down from a July 1 outlook for growth of 17.6 percent.

“Beating expectations will not be as simple as it was some quarters ago,” Meckler said, adding he expects sector bellwethers to perform well and give momentum to the market in the weeks ahead.

S&P 500 futures were up 2.2 points and above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration of the contract. Dow Jones industrial average futures gained 21 points, and Nasdaq 100 futures added 7.25 points.

NEW YORK (Reuters) – Stocks rose in the first week of 2012, even though news that the U.S. jobless rate neared a three-year low did not whet interest in equities on Friday.

The U.S. market came into the new year revisiting familiar themes, with signs the U.S. economic recovery was gathering speed taking some of the focus off of lingering concerns about the euro zone’s debt crisis.

“The news coming out of Europe was negative all week and we’re going to finish up, and I think that’s a real good performance in light of the background,” said Jack de Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire.

The Dow rose 1.2 percent, the S&P gained 1.6 percent and the Nasdaq added 2.7 percent for the week, with most gains coming from cyclical sectors tied to growth.

Among the week’s largest gainers the KBW bank index jumped 5.7 percent, in contrast with the 2.7 percent fall in the top gauge of European bank stocks .

Data this week painted a rosier picture on the labor, housing and retail markets, auguring a recovery in growth in 2012. The government’s report on non-farm payroll jobs for December earlier on Friday was the latest in a list of economic numbers that were stronger than anticipated.

On Friday the Dow and S&P edged lower. Worries about higher bond yields in Italy and Spain, as well as potential oil supply disruptions in the Middle East, were cited as giving investors a pause.

NEW YORK (Reuters) – U.S. stocks were on track to post gains for the first week of 2012 on Friday as signs of a sustainable economic recovery overshadowed lingering concerns about the euro zone’s debt crisis.

The government’s report on non-farm payroll jobs for December was the latest in a list of economic numbers that were stronger than anticipated. [ID:nL1E8C58N5] Data this week painted a rosier picture on the labor, housing and retail markets, auguring a recovery in growth in 2012.

“The employment statistics were unapologetically robust today and that is exactly what the market is looking for: signs of domestic growth,” said Jim Russell, regional investment manager for U.S. Bank Wealth Management in Cincinnati.

The Dow and S&P were on track to rise more than 1 percent this week and the Nasdaq added nearly 3 percent, with most gains coming from cyclical sectors tied to growth, including financials and energy. At the same time, volatility receded and the CBOE volatility index fell about 12 percent this week.

On Friday, the S&P hovered near break-even for most of the session, though it was mostly in negative territory. Worries about higher bond yields in Italy and Spain, as well as potential oil supply disruptions in the Middle East, were cited as giving investors a pause.

Caution ahead of next week’s auctions sent Italian benchmark yields above 7 percent while Spain’s 10-year paper yields also edged up to 5.758 percent.

“There were a lot of fireworks earlier in the week and perhaps there’s a little bit of nervousness going into the weekend with Europe and Iran as concerns,” said U.S. Bank’s Russell. “It feels like a tired market.”

NEW YORK (Reuters) – Banks led Wall Street to gains on Thursday even as Europe struggled again, a sign investors are betting a relatively strong U.S. economy will help U.S. stocks outperform other markets.

Overall gains were small, but banks advanced for a third day, supported by better-than-expected economic data. U.S. financial shares continued to delink from their European peers as investors see more potential for growth in U.S. lending that could offset worries about the euro zone debt crisis.

The KBW bank index rose 2.2 percent, extending the week’s advance to about 6 percent. Bank of America Corp (BAC.N: Quote, Profile, Research) jumped 8.6 percent to $6.31.

“While you do have the European issues, the U.S. banks do have some offsets,” said John Manley, the New York-based chief equity strategist at Wells Fargo Funds Management.

“There are signs of potential stability in the housing market and U.S. banks are probably being helped by that.”

Traders initially focused on heavy losses in European bank shares, led by UniCredit (CRDI.MI: Quote, Profile, Research). Italy’s largest bank has lost more than 30 percent of its value this week after it priced a share offering meant to shore up its ravaged balance sheet.

Other European bank shares fell, and an index of the region’s lenders tumbled 3.24 percent.