Standard & Poor's on Wednesday cut Spain's sovereign credit rating to BBB-minus, just above junk status, citing a deepening recession that is limiting the government's policy options to arrest the slide.
The downgrade comes with a negative outlook, reflecting the credit ratings agency's view that there are significant risks to growth and budgetary performance, plus a lack of clear direction in euro zone policies, Reuters reported.
"In our view, the capacity of Spain's political institutions (both domestic and multilateral) to deal with the severe challenges posed by the current economic and financial crisis is declining," S&P said in a statement.
S&P's two-notch downgrade from BBB-plus brings it in line with Moody's Investors Service's Baa3 rating. Moody's has Spain on review for a possible downgrade.
Both firms have Spain just on the cusp of junk status. Fitch Ratings has a BBB rating on Spain, one notch higher, but also with a negative outlook.
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A spokeswoman at Spain's Economy Ministry told Reuters the government had no comment on the ratings action.