Fitch cuts rating for Italy and Spain

Fitch ratings agency has cut both Italy and Spain’s credit ratings amid concern about debt and growth in the euro area economies.

Spain had its credit rating cut two levels, which cited the "intensification" of the euro crisis, slower Spanish growth and regional finances as risks to the nation's debt outlook.

Fitch cut its rating to AA- from AA+, the company said in a statement today from London. The outlook is negative.

Italy's rating was cut to A+ from AA-, with a negative outlook. Fitch last downgraded Italy in October 2006.

"The downgrade reflects the intensification of the euro zone crisis that constitutes a significant financial and economic shock, which has weakened Italy's sovereign-risk profile," Fitch said in the statement. "As Fitch has cautioned previously, a credible and comprehensive solution to the crisis is politically and technically complex and will take time to put in place and to earn the trust of investors."

The agency maintained Portugal at BBB-, saying it would complete a review of that ranking in the fourth quarter.

Spain's rating, which was AAA until 2010, has now been lowered twice by Fitch as the deepest austerity measures in three decades fail to convince investors the nation can stem the surge in its debt burden.

Moody's Investors Service also warned on October 4th "all but the strongest euro-area sovereigns" are likely to see further downgrades, as it cut Italy's rating for the first time in almost two decades.

Fitch said it expects Spanish growth to remain below 2 per cent a year through 2015.

Still, the nation's debt burden will peak at 72 per cent of gross domestic product in 2013, below the forecast for the euro area on average, the company said.

Spain is paying yields of around 5 per cent on its 10-year bonds even after the European Central Bank stepped in to prop up its bond market on August 8th. The gap between Spanish and German 10-year borrowing costs was 299 basis points today.