Moody's Continues Review of Italy's Aa2 Rating

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Moody's Investors Service Friday said it would finish reviewing Italy's Aa2 sovereign currency credit rating for possible downgrade within the next month, saying the country faces a challenging economic and financial environment.

Moody's cited the fluid political developments in the euro area, which is struggling with a deepening sovereign debt crisis.

The credit rating remains on review for possible downgrade, which Moody's put in place in June.

Italian bank UniCredit shed 7 percent even though the overall market was higher for a fourth straight day. Traders cited speculation that Moody's would downgrade Italy as one reason for the weakness in European bank shares.

In June, Moody's cited a rigid labor market and Italy's rising debt financing costs.

Italy has one of the largest public debt burdens in the world, equivalent to about 120 percent of gross domestic product. After Greece, that is the largest ratio in the 17-country euro zone.

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While Italy has not followed Greece, Ireland and Portugal in seeking emergency aid, it has faced higher borrowing costs as debt worries have spurred investors to demand higher returns to buy its government bonds.

Investors are also wary of European banks that hold large amounts of government debt from countries such as Italy that may be vulnerable to a downgrade.

Standard & Poor's has Italy at A+ with a negative outlook while Fitch Ratings has it at AA-minus with a stable outlook.

Moody's rating is two notches above S&P and one notch above Fitch. Moody's rating is two notches below the gold-plated Aaa status.

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