Good morning and welcome to the live blog with me, Juliette Garside. Today's focus is on the European debt crisis, with finance ministers gathering for the latest G20 talks in Paris, and news of credit rating downgrades for Spain and Switzerland's UBS bank.

Asian stocks tumbled, but the London markets were left unphased by the news, with the FTSE 100 index opening some 10 points higher at 5413.

Standard & Poor's cut Spain's credit rating this morning, to AA- from AA, sending the euro lower and echoing last week's move by Fitch. S&P explained its decision to cut the country's long term rating by pointing to Spain's high unemployment, tightening credit and high private sector debt.

The agency said:

Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain's growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain's main trading partners.

S&P is worried that labour market reforms in the eurozone's fourth largest economy are incomplete, and that there will be further asset deterioration at its banks. The agency now thinks Spain will see economic growth of just 1% in 2012, down from its February forecast of 1.5%, and warns there may be further downgrades to come.

We could lower the ratings again if, consistent with our downside scenario, the economy contracts in 2012, Spain's fiscal position significantly deviates from the government's budgetary targets, or additional labour market and other growth-enhancing reforms are delayed.

Back to UBS, Fitch has downgraded the bank's rating from A+ to A, and put seven other European and U.S. banks under review, citing stressed economies and financial markets and regulatory reform.

Barclays, Bank, BNP Paribas, Credit Suisse Group, Deutsche Bank, Societe Generale, Bank of America, Morgan Stanley and Goldman Sachs Group have all been put on notice for possible downgrades.

Fitch said the cuts would in most cases be one notch, although it could impose two notches in some instances.

Michael Hewson, market analyst at CMC Markets, said Europe's banks would have to take a bigger write down on their sovereign debt holdings than current talk suggests:

Today sees the beginning of another G20 finance ministers meeting and they will certainly have a lot to talk about now that Slovakia has finally ratified the EFSF [European Financial Stability Facility] bailout fund changes.

Problems still remain and have increased in size since the original July 21st meeting with significant debate about how to recapitalise Europe's banks as well as increasing the private sector involvement in relation to Greece.

There has been talk of haircuts being increased to between 30-50%, a start but still nowhere near big enough. There has also been talk of how to go about making the EFSF bigger in size with widespread disagreement on how to go about this.

UBS global chief economist Paul Donovan is not convinced today's G20 summit will solve the debt crisis. Here are a few highlights from his comments published this morning:



The G20 finance ministers gather together to drink champagne, consume foie gras, and spend taxpayers' money on flights to Paris. There is some chatter of agreeing further assistance for the IMF. Agreement is unlikely now (maybe later). Agreeing substantive policies is not what the G20 is for.

Donovan is not pinning his hopes on the European Central Bank's leadership either:

The ECB's Trichet has demonstrated the dangers of having a non-economist running a central bank by declaring that the ECB should be lender of last resort. Of course the ECB should be lender of last resort. That is the function of a central bank. This is economics 101. (Trichet retires in two weeks).

In conclusion, despite Slovakia's approval of a strengthened European Financial Stability Facility, he feels a solution is some way off:

Slovakia has approved EFSF version 2.0. This still does not do the job, however, and we need to reboot and upgrade. Banking recapitalisation is still necessary - helping those countries that can not (or will not in the future) be able to help their banks.

Here is today's agenda:

• Finance ministers and central bank chiefs gather for G20 meeting in Paris

• France's Sarkozy meets EU president Barroso – 3pm

• US retail sales data – 1.30pm

• Michigan consumer sentiment index – 3pm

• Result from Italian confidence vote - expected 1pm

Hello, Katie Allen here taking over the business live blog from Juliette Garside.

Time for a market round-up and it would appear Chinese inflation data is one of the main factors moving the FTSE 100 this morning. After inflation there softened somewhat in September suggesting central bank policymakers will pause in their tightening programme, commodity prices rose and on the UK stock market miners pushed higher. The FTSE 100 is up 40 points, or 0.7%, at 5443.6, reversing Thursday's 38 point fall.

Elsewhere in markets, France's CAC 40 stock index is up 16 points, or 0.5%, at 3202.9 while Germany's DAX is up 52 points, or 0.9%, at 5966.8. In commodity markets, Gold is higher at $1,675.1 an ounce while copper is also higher, up more than 3% to $7,540.25 a tonne.

Gilt prices have fallen as equity prices go up while the pound, at $1.5775 is not far off a one-month high hit on Wednesday of $1.5798.

News just in from Reuters that the ECB reportedly buying Italian and Spanish bonds. The news agency quotes one trader saying:

"They have been asking for Italy and Spain all across the curve, from two-year to 10-year."

The European Central Bank first began buying Italian and Spanish bonds in the secondary market in August in the hope of keeping yields under control.

Today's move by the ECB follows Standard & Poor's downgrade to Spain's credit ratings, which had pushed yields on Spanish government bonds higher in morning trading.

The fact G20 finance ministers and central bank chiefs are meeting in Paris today has buoyed market sentiment to some extent but economists are warning not to anticipate much action to result from the meeting.

Previewing the meeting earlier this week, James Knightley, senior economist at ING Financial Markets said:

We are not expecting too much from this, but it may give us a reasonable guide as to how the all-important G20 leaders' summit in Cannes in early November will go. We will hopefully get a better handle on what direction policy action on bank recapitalisation and the euro zone sovereign debt crisis is heading and potentially some news on other stimulus measures to combat the increasing recession threat.

Michael Turner, strategist at RBC Capital Markets says:

It is easy to envisage this meeting as largely an opportunity for non-European countries to voice their displeasure at European policy makers. Little meaningful policy progress is likely to be made; most European leaders will have the October 23 EU summit circled in their diaries as the main event.

More data from the UK to cast doubt over the economic recovery: news of a slowdown in the construction sector.

The news comes after a week that has seen a slew of UK data, including figures showing that: manufacturing output fell in August, unemployment hit a 17-year high and exports rose a record high in August.

This morning sees the release of less closely watched data on the construction sector, which makes up 7.6% of the economy. The Office for National Statistics reports construction output rose 0.4% in August but fell 4.1% on a year earlier.

Chris Williamson, chief economist at Markit, comments:

Construction industry output appears to be collapsing, according to the latest official data. There is a clear and worrying downward trend in the health of the industry so far this year, which corroborates a similar downturn in the construction PMI (purchasing managers' index) survey. Having registered double-digit annual growth at the start of the year (output rose 10.8% compared to January of last year), growth has rapidly deteriorated such that output has fallen at an accelerating rate in the latest three months, slumping some 4.1% on a year ago in August. While the first quarter saw a buoyant 6.8% expansion on last year, the second quarter saw output rise a mere 1.2% and data for the first two months of the third quarter show a fall of 2.7% compared to the same two month last year. While we continue to expect the economy to have grown in the third quarter, largely due to a rebound from disruptions to business in the second quarter, the downturn in the construction sector provides further cause to worry about the overall health of the economy.

Howard Archer, economist at IHS Global Insight says:

It is evident that the construction sector faces an extremely challenging environment, which threatens to limit activity over the coming months. In particular, the government's public spending cuts are limiting overall expenditure on public buildings, schools, hospitals and infrastructure (even though the government is keen to prioritize some infrastructure projects). On top of this, house building activity is likely to be constrained by persistently weak housing market activity, soft prices and a worrisome outlook. And if the economy continues to struggle markedly over the coming months, there is the danger that construction activity will be hit increasingly hard by projects being on hold or cancelled altogether. One possible ray of hope for construction is that a number of initiatives that the government is looking at to try to boost growth would have beneficial impacts for the sector. In particular, the government is looking to boost house building through instructing government departments to release state-owned land to be built on under a "Build Now, Pay Later" scheme. It has also been rumoured that the government is looking at investing an extra £5 billion on capital projects, although, for the time being at least, government ministers will only say that they are sticking to their spending plans.

German Chancellor Angela Merkel has just been speaking about the euro zone crisis and has vowed to help other countries in the euro zone when the stability of the broader bloc is in danger. She also says there is no "big bang" solution to the crisis and nor a euro bonds a miracle solution. She has outlined two priorities for the G20 summit of leaders in November.

Reuters quotes Merkel as saying:

There are two key issues for the G20 to discuss. The first is how can we prevent the spread of less regulated financial markets... and how do we deal with shadow banks and create a framework that prevents a troubled bank from hurting the whole sector.

As commentators around the world try to tot up what the Greek crisis will costs, my colleague Simon Rogers has just posted an interactive graphic showing the worst financial upheavals in history.

Louise Cooper, markets analyst at BGC Partners, has sent us her thoughts on the G20 meeting.

I feel pretty confident predicting that the meetings could get quite fiery, given the state of the world. And its not just the Eurozone, tensions between the Chinese and Americans are hotting up thanks to US legislation aiming to penalise China for its undervalued exchange rate. Treasury Secretary Tim Geithner is getting used to (and possibly enjoying) reprimanding European leaders and ratings agencies add further to the burden with a drip drip of downgrades for both sovereigns and banks (again get used to it). Pressure is mounting from all sides for the Politicians to come up with a big bazooka rather than a water pistol. A number of proposals are emerging - • Plans to increase the firepower of both the EFSF (all sorts of suggestions to do this) • Boosting funds available to the IMF (with the emerging economies of the world picking up the bill). • Bank recapitalisations • Increased haircuts for Greece However there are so many decisions that need to be made and little consensus from those involved.

Italian Prime Minister Silvio Berlusconi is safe for now, he has just won the confidence vote in parliament

US data shows retail sales rose a bigger-than-expected 1.1% in September, the fastest growth for seven months.

The Commerce Department reports that excluding autos, the rise was also bigger than expected at 0.6%. Economists had forecast a total rise of 0.7% and a rise without autos of 0.3%.

The news has helped the FTSE 100 extend gains to be up 76 points, or 1.4%, at 5479, while US futures point to a solid open on Wall Street.

Economic thinktank Re-Define has just sent us its take on the Italian confidence vote.

Re-Define's managing director Sony Kapoor says:



This is bad for Italy and bad for the Eurocrisis. With Mr. Berlusconi still at the helm, there is nothing that Italy can do from within that will restore market confidence. At the same time, European partners and the ECB are much less likely to want to support Italy as long as he is around. Mr Berlusconi has brought Italy to the brink, and now, he make take it over the edge. The best signal that Italy could have sent to the markets would have been to boot Mr Berlusconi out, but it has failed to do so. It may now be time for Italians to offer Berlusconi an amnesty to cajole him to leave. The longer he stays, the worse it is for Italy. Italy is fundamentally solvent, but a bit more time under Mr Berlusconi, and it may no longer be.

My colleague John Hooper is tweeting on the Italian confidence vote from Rome.

US stock market futures have added to gains in the wake of those stronger-than-expected retail sales numbers.

Rob Carnell at ING Financial Markets has this to say about the data:

We thought that retail sales would come in strongly. Auto sales for September had been very good, chain store sales looked impressive, and a combination of underlying factors such as slight improvements in the labour market, falling retail gasoline prices and improved equity markets probably added to the mix. Moreover, there was a suggestion that hurricane-postponed back-to-school spending in August was put back to September, and that may have also provided a bit of a boost.

US stock markets have just opened and the stronger-than-expected data showing a 1.1% rise in US retail sales last month has helped them rally. The Dow Jones Industrial Average is up 109 points, or 1%, at 11588.

My colleague David Gow in Brussels sends us this update on how the EFSF might be boosted up into a "bazooka":



Brussels is bathed in autumnal sunshine, EU officials are sitting, tie-less if male, in parks - and the action has moved with the Thalys to Paris, just an hour and 20 minutes away, and the G20. Even so, we're now getting a bit more visibility here on how policy-makers plan to turn the euro zone rescue fund, the EFSF, into a "bazooka." The best way to "optimise its resources", it appears, is to forget about it being a bank but, rather, treat it as an insurer. That means guaranteeing the first, say, 20% of private sector losses on Spanish and Italian bonds, perhaps 30% on those of more peripheral, weaker countries. That way, you don't have to upset the ECB and its new Italian president-in-waiting, Mario Draghi, by pressing it to buy even more government bonds. The aim, above all, is to avoid anything that smacks of the CDOs that got the entire world into trouble in 2007. The insurer idea has the merit of being acceptable to Berlin and not entirely anathema to Paris which had favoured the EFSF as a bank. Christophe Frankel, the fund's CFO and deputy chief executive, told reporters here today "any decision to use the EFSF's capacity more efficiently will not lead to an increase in guarantees from the member states" and, therefore, no impact on its own Triple A rating. Those guarantees of €780bn allow effective credit lending of €480bn but the insurer role could triple or quadruple its firepower. It's another of the ideas being kicked around in EU capitals but one gaining substantial traction. As is the notion - being discussed by G20 finance ministers in Paris - of an IMF "stability" bond that would be backed by, inter alia, China and other BRICs. This apparently landed on Brussels desks a few days ago. But sometime next week we should get the definitive blueprint for the "comprehensive, cohesive" plan from Merkel and Sarkozy in time for the five top-level meetings, including two summits, taking place between Friday night and Sunday evening.

Spain's government has been fighting back following the S&P downgrade. Referring to downgrades to Spain last week from Fitch, Economy Minister Elena Salgado says such ratings agencies are allowing themselves to be swayed too much by problems in the euro zone.

We are wrapping this blog up now but before we do, here is a quick summary of where markets stand as we head for the weekend and a round-up of the day's main events so far.

With around an hour to go till the close, the FTSE 100 stands at 5466, up 62 points, or 1.2%, on the day, helped by higher commodity prices, hopes of some resolution to the euro zone debt crisis and stronger-than-expected retail sales data from the United States.

The pound has strengthened against the dollar to stand at $1.5825, the highest in almost a month.

The Dow Jones Industrial Average is up 97 points, or 0.8%, 11576, the Standard & Poor's 500 Index is up 14 points, or 1.2%, at 1217.7 and the Nasdaq Composite Index is up 31 points, or 1.2%, at 2650.8.

Brent crude has pushed through $114 a barrel, copper is higher and so is gold.

Now to the main events of the day:

• G20 finance ministers and central bank chiefs are meeting in Paris

• Italy's Silvio Berlusconi survived a confidence vote

• Standard & Poor's cut Spain's credit rating this morning

• Fitch downgraded UBS and put seven other European and U.S. banks under review

• US retail sales rose 1.1% in September, the fastest growth for seven months

• US consumer sentiment unexpectedly slumped this month

• UK construction sector output rose 0.4% in August but fell 4.1% on a year earlier