Index: Lib/decimal.py
===================================================================
--- Lib/decimal.py	(revision 80686)
+++ Lib/decimal.py	(working copy)
@@ -1664,47 +1664,53 @@
         exp_min = len(self._int) + self._exp - context.prec
         if exp_min > Etop:
             # overflow: exp_min > Etop iff self.adjusted() > Emax
+            ans = context._raise_error(Overflow, 'above Emax', self._sign)
             context._raise_error(Inexact)
             context._raise_error(Rounded)
-            return context._raise_error(Overflow, 'above Emax', self._sign)
+            return ans
+
         self_is_subnormal = exp_min < Etiny
         if self_is_subnormal:
-            context._raise_error(Subnormal)
             exp_min = Etiny
 
         # round if self has too many digits
         if self._exp < exp_min:
-            context._raise_error(Rounded)
             digits = len(self._int) + self._exp - exp_min
             if digits < 0:
                 self = _dec_from_triple(self._sign, '1', exp_min-1)
                 digits = 0
-            this_function = getattr(self, self._pick_rounding_function[context.rounding])
-            changed = this_function(digits)
+            rounding_method = self._pick_rounding_function[context.rounding]
+            changed = getattr(self, rounding_method)(digits)
             coeff = self._int[:digits] or '0'
-            if changed == 1:
+            if changed > 0:
                 coeff = str(int(coeff)+1)
-            ans = _dec_from_triple(self._sign, coeff, exp_min)
+                if len(coeff) > context.prec:
+                    coeff = coeff[:-1]
+                    exp_min += 1
 
+            # check whether the rounding pushed the exponent out of range
+            if exp_min > Etop:
+                ans = context._raise_error(Overflow, 'above Emax', self._sign)
+            else:
+                ans = _dec_from_triple(self._sign, coeff, exp_min)
+
+            # raise the appropriate signals, taking care to respect
+            # the precedence described in the specification
+            if changed and self_is_subnormal:
+                context._raise_error(Underflow)
+            if self_is_subnormal:
+                context._raise_error(Subnormal)
             if changed:
                 context._raise_error(Inexact)
-                if self_is_subnormal:
-                    context._raise_error(Underflow)
-                    if not ans:
-                        # raise Clamped on underflow to 0
-                        context._raise_error(Clamped)
-                elif len(ans._int) == context.prec+1:
-                    # we get here only if rescaling rounds the
-                    # cofficient up to exactly 10**context.prec
-                    if ans._exp < Etop:
-                        ans = _dec_from_triple(ans._sign,
-                                                   ans._int[:-1], ans._exp+1)
-                    else:
-                        # Inexact and Rounded have already been raised
-                        ans = context._raise_error(Overflow, 'above Emax',
-                                                   self._sign)
+            context._raise_error(Rounded)
+            if not ans:
+                # raise Clamped on underflow to 0
+                context._raise_error(Clamped)
             return ans
 
+        if self_is_subnormal:
+            context._raise_error(Subnormal)
+
         # fold down if _clamp == 1 and self has too few digits
         if context._clamp == 1 and self._exp > Etop:
             context._raise_error(Clamped)
Index: Lib/test/test_decimal.py
===================================================================
--- Lib/test/test_decimal.py	(revision 80686)
+++ Lib/test/test_decimal.py	(working copy)
@@ -42,6 +42,12 @@
 # Useful Test Constant
 Signals = tuple(getcontext().flags.keys())
 
+# Signals ordered with respect to precedence: when an operation
+# produces multiple signals, signals occurring later in the list
+# should be handled before those occurring earlier in the list.
+OrderedSignals = (Clamped, Rounded, Inexact, Subnormal,
+                  Underflow, Overflow, DivisionByZero, InvalidOperation)
+
 # Tests are built around these assumed context defaults.
 # test_main() restores the original context.
 def init():
@@ -352,6 +358,25 @@
                 else:
                     self.fail("Did not raise %s in %s" % (error, s))
                 self.context.traps[error] = 0
+
+            # as above, but add traps cumulatively, to check precedence
+            ordered_errors = [e for e in OrderedSignals if e in theirexceptions]
+            for error in ordered_errors:
+                self.context.traps[error] = 1
+                try:
+                    funct(*vals)
+                except error:
+                    pass
+                except Signals, e:
+                    self.fail("Raised %s in %s; expected %s" %
+                              (type(e), s, error))
+                else:
+                    self.fail("Did not raise %s in %s" % (error, s))
+            # reset traps
+            for error in ordered_errors:
+                self.context.traps[error] = 0
+
+
         if DEBUG:
             print "--", self.context
         try: