Italy has had its sovereign debt rating cut by Standard & Poor's, the latest move in the deepening European debt crisis.
S&P cut its rating by one level to A from A+, adding that the outlook for the country was "negative".
It cited fears over Italy's ability to cut state spending and bring its finances in order, particularly given the country's growth prospects.
Italy said the move had been influenced by "political considerations".
A government statement said the downgrade had also been dictated more by stories in the media than by economic reality.
'Future uncertainty'
Italy recently passed an unpopular austerity budget, but S&P suggested this did not go far enough.
"We believe the reduced pace of Italy's economic activity to date will make the government's revised fiscal targets difficult to achieve," S&P said in a statement.
Continue reading the main story
“Start Quote
Investors will be shaken, as if they are not shaken enough already, by what appears to be decaying conditions for another sovereign issuer”
Carl Weinberg High Frequency Economics
"Furthermore, what we view as the Italian government's tentative policy response to recent market pressures suggests continuing future political uncertainty about the means of addressing Italy's economic challenges."
Italy follows fellow eurozone countries Spain, the Republic of Ireland, Greece, Portugal and Cyprus in having its credit rating downgraded this year.
The surprise move by the ratings agency will fuel fears of contagion in the eurozone.
Italy has Europe's second-largest debt level and the cost of that debt has been rising in recent weeks as lenders to Italy have become nervous about its ability to repay loans.
The cost of borrowing in Italy and Spain both jumped this morning, with Italy's bond yield, which indicates its cost of borrowing, rising from 5.57% to 5.7% in early trading.
"Coming at a time when the world's financial markets are on edge, warily watching for a default by Greece with knock-on unknown effects on the financial system, the optics of this downgrade stink," said Carl Weinberg of High Frequency Economics.
"Perceptions are more important than realities," he added.
"Investors will be shaken, as if they are not shaken enough already, by what appears to be decaying conditions for another sovereign issuer."
9/20/11
Italy's sovereign debt rating cut by S&P on growth fear
2:22 PM
deinalove
