Italy Bond Rating Cut By Moody’s On Contagion Risks

Italy’s bond rating was cut two levels by Moody’s Investors Service hours before a sale of more than 5 billion euros ($6.1 billion) of debt as the financial crisis threatens to cut off market funding to the euro area’s third-biggest economy.

The ratings company lowered Italy’s government bond rating to Baa2 from A3 and said further downgrading is possible, according to a statement released in Frankfurt today. That’s two levels above junk and one above Spain, according to data compiled by Bloomberg.

“Italy’s near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets,” Moody’s said. “Failure to meet fiscal targets in turn could weaken market confidence further, raising the risk of a sudden stop in market funding.”

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