Fitch slashes Spain's credit rating

By Julianne Pepitone, staff reporter


NEW YORK (CNNMoney.com) -- Fitch downgraded Spain's sovereign debt to a lower investment grade Friday, adding to continued concerns about European contagion.

Spain's long-term sovereign debt rating was reduced to "AA+" from "AAA." That keeps Spain's debt at investment grade, which means the country's debt can be still be used as collateral. But any downgrade typically raises concern.

Fitch said its downgrade reflects that Spain's efforts to reduce its debt "will materially reduce the rate of growth of the Spanish economy over the medium term," said Brian Coulton, head of Fitch's sovereign ratings unit, in a statement.

The rating agency cited a weak job market, several bank restructurings and high government debt as major hindrances to Spain's recovery. Still, Fitch reaffirmed its "stable outlook" and kept Spain's short-term rating unchanged at "F1+."

European nations have faced a slew of downgrades in the past several weeks, including Standard and Poor's cut of Greece's debt to junk status. S&P also lowered Spain's and Portugal's investment grade status in April.

"It was a knee-jerk reaction. This was coming. It's not a surprise," said Dr. Scherezade Rehman, a professor of international business at George Washington University's School of Business and the EU Research Center Director.

Rehman added she expects other ratings agencies to follow suit with similar downgrades. "It demonstrates the contagion," she said.

Fitch's move slammed U.S. stocks Friday, which took a dive in thin trade ahead of the Memorial Day holiday.

Worries that the debt crisis will snowball and spread throughout Europe have battered markets lately. Continued uncertainty about the zone's future has also weighed on its currency -- the euro has fallen more than 6% in the past month.

CNNMoney.com senior writer Jeanne Sahadi contributed to this report To top of page

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