Moody's Investors Service on Tuesday cut Portugal's credit rating by four levels to Ba2, two notches into junk territory, saying there is great risk the country will need a second round of official financing before it can return to capital markets.

COMMENTS:

MICHAEL JAMES, SENIOR TRADER AT REGIONAL INVESTMENT BANK WEDBUSH MORGAN, LOS ANGELES:

The potential for the market going down from here on this is greater given the big rally that we had last week. The market had a 6 percent move and now you get this news about Portugal's debt being downgraded. Certainly the potential for that causing a market pullback is a lot higher here than it was a couple of days ago.

CARY LEAHEY, ECONOMIST AND MANAGING DIRECTOR, DECISION ECONOMICS, NEW YORK:

The Portugal downgrade clearly is negative because as the downgrades spread from the weakest to the weaker, the market is now asking, 'If Portugal is downgraded, will Spain be next?' It's symptomatic of the contagion effects in the eurozone. Ultimately, these ratings downgrades should be dollar-friendly and euro unfriendly. And friendly for anything considered to be, in some sense, a safe-haven -- like Treasuries.

GREG SALVAGGIO, VICE PRESIDENT OF TRADING, TEMPUS CONSULTING, WASHINGTON:

The market hasn't reacted too much yet but things are thin today. But this is big news, contagion is happening. What's next? Ireland? Some are even worried about Italy now. It's definitely a euro-negative. We've seen safe-haven gold purchases and stocks are selling off on it. It's a troubling new development, given that Greek austerity measures have yet to be implemented. I think the worst fears of the ECB are being realized and people might get very aggressive. You could even see Italian bonds get sold aggressively.

LUKE RAHBARI, PARTNER AT STUTLAND VOLATILITY GROUP IN CHICAGO

For the main part this was expected, though the markets did trade down on it. Everyone expected a downgrade, so this is more symbolic. The amount of debt Portugal has isn't as big as other countries. What people are waiting on is to see how Greece is treated, that'll be the playbook for how this situation plays out for other countries, more or less. In the short-term, everything will be pressured here. Everyone wants to get out of every asset and reassess after we get more clarity.

BRIAN DOLAN, CHIEF CURRENCY STRATEGIST, FOREX.COM, BEDMINSTER, NEW JERSEY:

This renews the question of whether not just Greece but the other peripherals are likely to need more bailouts. These issues were not extinguished last week. There was a nice dose of water poured on them but they are still smoldering, and this is like adding gasoline to those smoldering ashes. The euro could drop below $1.44, though it may have to wait until after the ECB meeting.

MARKET REACTION: STOCKS: U.S. stock indexes edged slipped BONDS: U.S. bond prices gained FOREX: The dollar gained against the euro

Portugal