By Lewis Krauskopf

NEW YORK, May 19 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

By Lewis Krauskopf, Markets Correspondent

The Moody's downgrade of the U.S. credit rating rippled through markets on Monday and put fresh focus on the nation's fiscal outlook. Long-dated Treasury yields rose, the dollar fell, while stocks edged higher after rebounding from sharp declines early in the session.

Jamie is enjoying some well-deserved time off, but check out his latest column examining Federal Reserve Chair Jerome Powell's legacy as the central bank prepares to release its new review later this year.

I'd love to hear from you, so please reach out to me with comments at Lewis.Krauskopf@thomsonreuters.com.

Today's Key Market Moves

• Long-dated U.S. Treasury yields climb, with the 30-year yield hitting an 18-month high and breaking above 5% during the day, while benchmark 10-year yields also rise, at 4.46% late on Monday

• U.S. stocks erase early-session losses, S&P 500 ends up 0.1%, Dow gains 0.3%

• Dollar weakens against key rival currencies

• Oil prices settle modestly higher as signs of a breakdown in U.S. talks with Iran over its nuclear program offset pressure from the Moody's downgrade of the U.S. credit rating

• Gold prices firm, boosted by a softer dollar and safe-haven demand

Today's Key Reads

1. Moody's downgrade intensifies investor worry about US fiscal path

2. The 'triple A' sovereign bond club has shrunk

3. Undimmed US 'exceptionalism' seems improbable

4. Republicans hope to nudge Trump tax cuts toward passage despite divisions

5. How Trump’s crypto business partners left their old clients in the lurch

Dealing with the US downgrade

The landmark downgrade of the U.S. sovereign credit rating dominated markets on Monday, the first full trading day since Moody's Investors Service cut the country's pristine rating late on Friday.

The move by Moody's to cut the "Aaa" rating for the U.S. rippled through Treasury markets, with the decision drawing attention to the country's deteriorating fiscal outlook. The ratings agency cited concerns about the nation's growing $36 trillion debt pile.

Longer-dated Treasury yields climbed. The 30-year yield initially broke above 5% and hit an 18-month high. The yield on the benchmark 10-year Treasury also rose, touching a one-month high of 4.56% before edging back below 4.5%.

The dollar weakened broadly on Monday, with the greenback hitting a more than one-week low against a basket of currencies.

While the timing of the downgrade caught some investors off guard, many nonetheless said the decision was not a shock. Moody's was the last of the three major credit agencies to downgrade the U.S. rating, with Standard & Poor's doing so after the 2011 debt ceiling crisis, and Fitch downgrading the U.S. in 2023.

After slumping to start Monday's session, U.S. stocks largely shrugged off the news. The benchmark S&P 500 ended with a slim gain after initially falling 1%.

The downgrade did not appear to significantly dampen the mood on Wall Street, which has improved dramatically. Optimism that worst-case trade scenarios will not come to pass -- especially following a U.S.-China trade truce -- is helping a torrid rebound for equities over the past few weeks. The S&P 500 is within 3% of its all-time high after sliding to the brink of a bear market in early April.

The fiscal issues facing the U.S. will remain in the spotlight this week, as lawmakers debate a sweeping tax bill. Republicans who control the House of Representatives will try to nudge President Donald Trump's bill toward passage this week, despite a running battle over spending cuts and tax breaks.

Trade continued to be a dominant topic for investors. Treasury Secretary Scott Bessent said in television interviews over the weekend that Trump will impose tariffs at the rate he threatened last month on trading partners that do not negotiate in "good faith" on deals.

It's a slow week for U.S. economic data, but investors in the coming days will have quarterly earnings reports from a number of major U.S. retailers to chew on.

What could move markets tomorrow?

• Home Depot earnings

• Palo Alto Networks earnings

• G7 finance leaders meeting

• Several Federal Reserve speakers expected, including Fed Bank of St. Louis President Alberto Musalem

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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(By Lewis Krauskopf, Editing by Bill Berkrot)

((Lewis.Krauskopf@thomsonreuters.com))