Standard & Poor's is set to downgrade the credit ratings of several euro zone countries later on Friday, but not those of Germany and the Netherlands, a senior euro zone government source said.

Another source confirmed several countries would be hit.

French TV, citing a government source, said France's credit rating would be downgraded and another source said Slovakia, the euro zone's second poorest country currently rated A+ by S&P, would suffer the same fate.

Remain alert tonight when U.S. markets close, said another euro zone source.

In December, S&P placed the ratings of 15 euro zone countries on credit watch negative - including those of top-rated Germany and France, the region's two biggest economies - and said systemic stresses were building up as credit conditions tighten in the 17-nation bloc.

Since then, the European Central Bank has flooded the banking system with cheap three-year money to avert a credit crunch.

At the time, the U.S.-based ratings agency said it could also downgrade the euro zone's current bailout fund, the EFSF.

The consequence (if France is downgraded) is that the EFSF cannot keep its triple-A rating, said Commerzbank chief economist Joerg Kraemer.

That may irritate markets in the short term but wouldn't be a big problem in a world where the U.S. and Japan also don't have a triple-A rating anymore. Triple-A is a dying species, he said.

S&P has said that if a downgrade did materialize, countries such as Germany, Austria, Belgium, Finland, the Netherlands and Luxembourg would likely see ratings cuts of only one notch.

The other nine countries - most notably triple A-rated France - could suffer downgrades of up to two notches.

S&P declined to comment on Friday on the Reuters report of an impending wave of downgrades, which hit stocks, the euro and boosted demand for safe-haven U.S. government debt.

European shares extended falls to stand more than one percent lower on the day.

A downgrade could automatically require some investment funds to sell bonds of affected states, making those countries' borrowing costs rise still further.

It's been priced in for several weeks, but the market had been lulled into complacency over the holidays, and the new year began with a bounce in risk appetite, thanks partly to a good Spanish auction, said Samarjit Shankar, Director Of Global Fx Strategy at BNY Mellon in Boston.

But the Italian auction brought us back to earth and now we face the spectre of further downgrades.

Italy's three-year debt costs fell below 5 percent on Friday but its first bond sale of the year failed to match the success of a Spanish auction the previous day, reflecting the heavy refinancing load Rome faces over the next three months.

(Reporting Matthias Sobolewski and Annika Breidthardt, additional reporting by Ritsuko Ando in Helsinki and Martin Santa in Bratislava, writing by Annika Breidthardt, editing by Mike Peacock)