Italy's sovereign debt rating cut by S&P on growth fear

S&P cut its rating one level to A/A-1 from A+/A-1+, 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.

Italy recently passed an unpopular austerity budget.

"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.

Italy follows fellow eurozone countries, Spain, 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 soaring in recent weeks as lenders to Italy have become nervous about its ability to repay loans.

The downgrade is likely to raise Italy's borrowing costs further.

"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"; Kazinform cites BBC.

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