NEW YORK ( TheStreet) -- Maybe Europe isn't in the clear after all.

The major U.S. equity indices rallied on Monday following news that Greece had reached an agreement on austerity measures that should satisfy Eurozone leaders and lead to the release of another round of bailout money, but the idea that contagion fears are subsiding in the old continent took a hit after the close when Moody's Investor Service unleashed a round of sovereign debt downgrades, including a two-notch drop for Spain.

The credit ratings agency said the moves "reflect their susceptibility to the growing financial and macroeconomic risks emanating from the euro area crisis and how these risks exacerbate the affected countries' own specific challenges."

Specifically, Moody's lowered its rating on Italy to A3 from A2 with a negative outlook; Spain to A3 from A1 with a negative outlook; Portugal to BaA3 from BaA2 with a negative outlook; Malta to A3 from A2 with a negative outlook; and Slovenia and Slovkaia both to A2 from A1 with a negative outlook.

The agency also brought down its outlook to negative for the triple-A ratings of France, the United Kingdom and Austria.

Moody's cited "the uncertainty over (i) the euro area's prospects for institutional reform of its fiscal and economic framework and (ii) the resources that will be made available to deal with the crisis" for the move, as well as the "increasingly weak macroeconomic prospects" for the region.

It also said it expects market confidence in Europe is "likely to remain fragile, with a high potential for further shocks to funding conditions for stressed sovereigns and banks."

Moody's made it clear that it believes Europe's leaders working to get a handle on the debt problems of the region have a tough job, and said Monday's moves weren't as negative as they could have been because of the policies already being implemented, such as the long-term refinancing operation undertaken in December.

"An important factor limiting the magnitude of Moody's rating adjustments is the European authorities' commitment to preserving the monetary union and implementing whatever reforms are needed to restore market confidence," the agency said. "These rating actions therefore take into account the steps taken by euro area policymakers in agreeing to a framework to improve fiscal planning and control and measures adopted to stem the risk of contagion."

The Dow Jones Industrial Average finished Monday at 12,874, up 73 points, while the S&P 500 booked a gain of 9.1 points to settle at 1351.8 and the Nasdaq Composite advanced 27.5 points to 2,931.4.

The indices have been on tear so far in 2012 with the Dow up 5.4%, the S&P 500 rising 7.5%, and the Nasdaq surging 12.5% through Monday's finish.

-- Written by Michael Baron in New York.

>To contact the writer of this article, click here: Michael Baron.The credit ratings agency cuts its rating on 6 countries, including a 2-notch drop for Spain, and brings down its outlook for France, the United Kingdom and Austria

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