Downgrades of Morgan Stanley, Credit Suisse Group AG and 13other global banks, announced by Moody's Investors Service aftermonths of speculation about dire fallout, were met instead byrallies in stocks and bonds.

The cost to protect Morgan Stanley's debt against lossesdropped, and the shares rallied as much as 4.6 percent in extendedtrading yesterday after the ratings firm cut the bank by two levelsrather than a threatened three grades. Credit-default swaps tied toBank of America Corp., which was lowered to within two levels ofjunk along with Citigroup Inc., also improved, along with those ofGoldman Sachs Group Inc.

“American banks are stronger today than they were three yearsago,” said Gerard Cassidy, a bank equity analyst with RBC CapitalMarkets, adding that market prices have long reflected concernsraised by Moody's. “Yes, their ratings are lower, but is Cititomorrow going to have to pay an extra 50 basis points forcommercial paper? I don't think so.”