The Australian share market opened down four per cent at a fresh two-year low this morning while Japanese stocks were down more than three per cent in opening trade.
In New Zealand the NZX50 was down 3.3 per cent in early afternoon trade.
S&P said yesterday that there was no immediate impact on the sovereign ratings of Asia-Pacific countries from its downgrading of the United States.
"However, given the interconnectivity of the global markets, an unexpectedly sharp disruption in developed world financial markets could change the picture. It could lead the US and European economies into deep contractions again, or further delay their recoveries."
New Zealand is among those S&P says could experience export-driven slowdowns, either through weaker demand or lower export prices, or both.
In addition, countries whose financial systems rely heavily on overseas markets for funding, again including New Zealand, might find it more difficult to roll over debt.
The Government's balance sheet is among those S&P cites as "bearing the scars" of the recent downturn.
If a renewed slowdown came, it would be likely to have a deeper and more prolonged impact than the last one in 2008-09, it said.
Standard & Poor's surprised many late last year when it put New Zealand's AA+ credit rating on "credit watch negative'' signalling a one-in-three chance of a downgrade within two years.
But while Mr Key earlier this week said S&P's decision to downgrade the US, showed his Government was right to pay close attention to what the ratings agencies told it, he said this morning that unlike S&P he believed New Zealand was actually in better shape to handle the turmoil than it was before the 2008-2009 global financial crisis.
"For the most part I think we can take confidence from the fact our foundation stones are much stronger than they were three years ago", he said.
Mr English said the the Government was in better shape "because it's got its debt under control, the Reserve Bank knows more about how to handle the crisis because they've learned a lot from 2008".
"I think most New Zealanders are in better shape. We're getting used to this sort of buffeting and we're showing a lot of resilience over the last two or three years, households have got the messages from the world that they need to borrow a bit less and save a bit more."
He agreed with S&P that the Government's finances were "bearing scars", "in the sense that we ran a very large deficit driven very significantly by the Christchurch earthquake.
"But what's important is we've got a track that's taking us back to surplus which will give us one of the stronger balance sheets around.
"Standard & Poor's will have their opinions we're happy with the progress we're making."
But Green Party Co-leader Russel Norman said S&P's warning "should cause the National Government to rethink their management of the economy''.
"A credit downgrade for New Zealand would raise the cost of borrowing across the economy having the effect of suppressing economic recovery.''
"Standard & Poor's specific reference to the weaknesses of the New Zealand economy is not a stamp of approval for John Key's economic direction," said Dr Norman.
"There are decisions his Government could be taking right now to reduce our vulnerabilities to a downturn in the global economy.''
That included cutting plans to borrow for new roads and measures to reduce private debt.
Meanwhile President Barack Obama says the US always is and always has been a triple-A country, despite its rating agency debt downgrade.
He said also the US did not need a rating agency to tell it that its political system was having trouble functioning.
Speaking at the White House on the Standard & Poor's downgrade, Obama renewed a plea to Congress to take action in September of help create jobs and cushion Americans from a still weak economy.
Deutsche Bank chief economist Darren Gibbs said the risk of a double dip recession in the United States had clearly gone up.
US growth in the first half of the year was only 0.8 per cent, annualised, and the only reason the unemployment rate had dipped - to 9.1 per cent - on Friday was that the labour force participation rate had fallen to its lowest level since 1984.
The most recent consumer confidence survey, also on Friday, was at its lowest for 10 years - lower even than during the global financial crisis, Gibbs said.
"The whole debacle around the renegotiation of the debt ceiling has clearly taken a toll," he said.
"A month ago American households could at least console themselves with gains in equity prices, even if house prices were flat or down. Now they don't even have that."
Goldman Sachs New Zealand economist Philip Borkin said his US colleagues now saw a one in three chance the United States would fall back into recession.
The fiscal stimulus put in place during the global financial crisis was winding down and fiscal policy would turn quite contractionary, he said.
"Despite the weaker dollar the US current account deficit is deteriorating and is expected to continue to do so. Unfortunately that means a higher New Zealand dollar and as a result we are becoming a lot more cautious about the manufacturing and tourism sectors as a result," Borkin said.
"It is not the environment we want for the export-led recovery."
Gibbs said that notwithstanding the S&P downgrade, the implications of the last week and a half were that US long-term interest rates would continue to decline.
"We know from Japan that you can have a lower sovereign rating and still have extremely low yields. It is risk aversion that is going to dominate."
The outlook for Europe looked increasingly poor as well, he said.
"So we will all be looking hopefully to China and hoping inflation there will ease and allow the People's Bank of China to ease up its credit rationing."
