Euro slides after S&P lowers Spain rating

Oct. 11, 2012 at 2:01 AM
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MADRID, Oct. 11 (UPI) -- The euro slid against the dollar Thursday after Standard & Poor's reduced Spain's credit rating almost to junk status and said it might downgrade it further.

The European currency briefly slipped to $1.2825 -- its lowest level since Oct. 1 -- before strengthening to trade slightly below its Wednesday close of $1.2876.

S&P lowered Spain two notches to triple-B-minus from triple-B-plus late Wednesday, downgrading Spain's credit rating to one notch above speculative-grade "junk" status.

"The capacity of Spain's political institutions ... to deal with the severe challenges posed by the current economic and financial crisis is declining," S&P said in a statement.

The firm attached a "negative outlook" to its downgrade, suggesting it might devalue Spain further if political support for Madrid's reform agenda weakens.

It might also downgrade Spain if eurozone support doesn't stop Spain's borrowing costs from hitting unsustainable levels, if Spain's sovereign debt tops 100 percent of economic output or if the country's debt payments exceed 10 percent of general government revenues.

S&P added a "hesitation" by conservative Prime Minister Mariano Rajoy's government to request a bailout was "potentially raising the downside risks to Spain's rating."

Rajoy has said he is in no hurry to decide about a bailout. He has said he won't act unless he's sure speedy help will be available without a lengthy and tortuous approval process.

S&P's downgrade puts Spain's rating on an equal footing with where Moody's Investors Service rates Spain. Moody's has Spain on review for another potential downgrade by the end of the month.

The Fitch ratings agency lowered Spain's solvency three notches from A to triple-B in June -- still two notches above junk status -- but gave Spain a negative outlook.

Smaller ratings agency Egan-Jones Ratings pushed Spain deeper into junk status Sept. 27, lowering it from double-C-plus to double-C, its seventh downgrade of the country this year.

The downgrade comes after Spain announced five austerity packages in less than a year.

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