(Reuters) - Moody's on Friday surprised markets by downgrading Italy's government bond rating by two notches to Baa2 and warned it could cut it further, piling on pressure just hours before the country launches its latest bond sale.
reuters.com/article/2012/07/13/us-italy-ratings-idUSBRE86C00M20120713The move left Italy's rating just two notches above junk status and could raise already-painful borrowing costs.
The stark warning from Moody's, which highlighted Italy's vulnerability to political shocks in the euro zone and could deepen worries about the region's debt crisis, knocked the euro down about a quarter of a cent to $1.2190 in Asian trade.
"Italy's government debt rating could be downgraded further in the event there is additional material deterioration in the country's economic prospects or difficulties in implementing reform," the agency warned.
"Should Italy's access to public debt markets become more constrained and the country were to require external assistance, then Italy's sovereign rating could transition to substantially lower rating levels."
The move by Moody's Investors Service took its ratings for Italy below those from agencies Standard & Poor's Ratings Services and Fitch Ratings.