Spain, Italy Debt Ratings Cut, Adding to Market Jitters
Spain and Italy's debt was downgraded Friday by Fitch ratings agency, sending stocks lower and dealing another blow to Europe's efforts to resolve its credit crisis.
Fitch cited slow growth and high debt in cutting Spain's sovereign credit rating, while Italy's was cut because of high public debt, low growth and the "politically technical and complex" solution necessary to fix Italy's financial ills and earn back the trust of investors.
U.S. stocks turned lower after the Fitch downgrades, adding to continuing jitters about the euro zone debt crisis.
The move came as several of Europe's weakened banks had their ratings cut Friday, highlighting the pressure on the European Union to agree on some kind of bailout for the industry.
Moody's Investors Service downgraded its ratings on nine Portuguese banks, citing the increased asset risk linked to their holdings of Portuguese government debt and the sovereign downgrade of Portugal in July.
The same agency also cut the ratings of two top British banks, citing a likelihood of less state support in a future crisis as Britain sought to reassure investors the sector was well capitalized.
Meanwhile Standard and Poor's downgraded the core banks of Franco-Belgian financial group Dexia— the bank which has come to epitomize the European debt crisis through its unusually large exposure to the debts of the euro zone's weakest country, Greece.
Rival Fitch placed Dexia bank entities on rating watch negative.
The downgrades come ahead of crucial summit talks on Sunday between German Chancellor Angela Merkel and French President Nicolas Sarkozy and as diplomats detected a split between them over how any strengthening of banks should take place.
In its Italy report, Fitch said it was downgrading the government debt from double-A minus to A-plus. Moody's downgraded Italy's bond ratings on Tuesday to "A2" with a negative outlook from "Aa2."