Standard & Poor's on Tuesday downgraded Portugal's ratings, citing concerns about its ability to deal with high debt levels and urged more measures to cut the country's budget deficit.
The agency cut the rating by two notches to A-minus, or four notches above speculative, or junk status.
The two-notch downgrade reflects our view of the amplified fiscal risks Portugal faces, said Standard & Poor's credit analyst Kai Stukenbrock.
The agency said Portugal's public finances remained structurally weak despite public sector reforms introduced in recent years.
S&P's rating on Portugal is now the lowest of the credit agencies.
The action reflects our view of the amplified fiscal risks Portugal faces, said the agency. Under our revised base case economic growth scenario, we expect the Portuguese government could struggle to stabilize its relatively high debt ratio over the outlook horizon until 2013.
S&P said that because of its reliance on foreign financing and weak external competitiveness Portugal needs to implement fiscal consolidation over and above its current plans.
Portugal's government has promised to reduce its budget deficit to below 3 percent of gross domestic product by 2013 from 9.4 percent last year.
(Reporting by Ciara Linnane and Axel Bugge; editing by Ron Askew)