Spain loses AAA credit rating from Fitch

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In a reminder that Europe’s debt crisis will likely be generating ugly headlines for a long time to come, Spain on Friday was hit by another credit downgrade.

Fitch Ratings cut Spain to AA-plus from AAA, citing its expectation that the country’s need to slash debt levels “will materially reduce the rate of growth of the Spanish economy over the medium-term.”

Fitch’s move helped cut short a rally in the euro currency. The euro was trading at $1.231 at about 10:30 a.m. PDT, down from $1.238 on Thursday.

U.S. stocks also slid as the announcement hit news wires. The Dow industrials were down about 103 points, or 1%, to 10,155 after Thursday’s big rally.

Fitch rival Standard & Poor’s reduced its rating on Spain’s debt to AA from AA-plus in late April. Moody’s Investors Service still rates Spain Aaa.

Although Fitch cut Spain’s rating, it said the outlook now was stable. The country’s parliament on Thursday narrowly agreed to a package of austerity measures to pare the government’s budget deficit.

But Fitch’s stable outlook drew guffaws from some analysts. Win Thin, a currency strategist at Brown Bros. Harriman in New York, argued that Spain “has gotten off relatively easy” from the ratings firms so far.

“We stress again that we see multiple downgrades ahead for Spain,” Thin said, noting growing concerns about the health of the country’s banking system.
-- Tom Petruno