Rating agency Moody's warned on Monday it may cut the triple-A ratings of France, the United Kingdom and Austria, and it downgraded six other European nations including Italy, Spain and Portugal, citing growing risks from Europe's debt crisis.
Moving less aggressively than rival agency Standard & Poor's last month but putting the United Kingdom's rating in jeopardy for the first time, Moody's said it was worried about Europe's ability to undertake the kind of reforms needed to address the crisis and the amount of funds available to fight it.
It also said the region's weak economy could undermine austerity drives by governments to fix their finances.
The U.S. rating agency said it changed the outlooks for the ratings of France, the UK and Austria to negative due to a number of specific credit pressures that would exacerbate the susceptibility of these sovereigns' balance sheets.
Germany's top-tier rating was described as appropriate by Moody's And it affirmed the triple-A rating on the euro zone's bailout fund, the European Financial Stability Fund.
Moody's, which said late last year it was reconsidering its European ratings, cut by one notch the ratings of Italy, Portugal, Slovakia, Slovenia and Malta and downgraded Spain by two notches.
Moody's said the scope of the downgrades was limited due to the European authorities' commitment to preserving the monetary union and implementing whatever reforms are needed to restore market confidence.
The announcement came a day after Greece's parliament approved a deep new round of budget cuts in the hope of securing new bailout funds and avoiding a chaotic default in March.
The rating outlooks of the nine countries affected by Moody's action was set to negative, given the continuing uncertainty over financing conditions over the next few quarters and its corresponding impact on creditworthiness, Moody's said.
The euro and sterling fell after the announcement while U.S. equity markets did not immediately react, with S&P 500 futures down two points in light trading.
The euro was down 0.2 percent at $1.3164.
BRITAIN, FRANCE UNDER PRESSURE
Britain's finance minister responded by saying the country must keep its promise to slash its large budget deficit.
This is proof that, in the current global situation, Britain cannot waver from dealing with its debts, finance minister George Osborne said. This is a reality check for anyone who thinks Britain can duck confronting its debts.
The government in Britain has come under increasing pressure to soften its austerity measures to give a stalling economy room to breathe.
The French government said it will press ahead with its policies to improve competitiveness and growth while reducing the government deficit.
The government is determined to press ahead with its actions to boost growth and competitiveness, notably the reform of the financing of welfare, of employment and the reduction of public deficits, Finance Minister Francois Baroin said in a statement.
Moody's move on Monday follows one by Standard & Poor's last month, when France and Austria lost their triple-A status, while Italy, Spain, Portugal, Cyprus, Malta, Slovakia and Slovenia were downgraded. S&P also cut the EFSF by one notch.
Also in January, rating agency Fitch downgraded the sovereign credit ratings of Belgium, Cyprus, Italy, Slovenia and Spain, indicating there was a 1-in-2 chance of further cuts in the next two years.
(Reporting by Rodrigo Campos in New York, Daniel Flynn in Paris and Matt Falloon in London; editing by Leslie Adler, Andrew Hay and Andre Grenon.)