S&P Downgrades Spain, Outlook Negative

NEW YORK ( TheStreet) -- Standard & Poor's downgraded Spain late Thursday, lowering its long-term sovereign credit rating on the country to 'BBB+' from 'A' because of worries about rising debt.

The credit rating agency also cut its short-term sovereign credit rating to 'A-2' from 'A-1' and said the outlook on the long-term rating is negative.

"The downgrade reflects our view of mounting risks to Spain's net general government debt as a share of GDP in light of the contracting economy, in particular due to: The deterioration in the budget deficit trajectory for 2011-2015, in contrast with our previous projections, and t he increasing likelihood that the government will need to provide further fiscal support to the banking sector," S&P said.

The firm previously lowered its rating on Spain in mid-January, and said Thursday's downgrade was in part driven by the country's banking system depending on "official funding sources" much more than it had anticipated.

"In our view, the strategy to manage the European sovereign debt crisis continues to lack effectiveness," S&P said. "We think credit conditions, and hence the economic outlook for Spain, could now deteriorate further than we anticipated earlier this year unless offsetting eurozone policy measures are implemented to support investor confidence and stabilize capital flows with the rest of the world."

-- Written by Michael Baron in New York.

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