(REUTERS) - European stocks and the euro slid and most bond yields rose after the threat from rating agency Standard & Poor's to downgrade Eurozone countries en masse if no credible plan to solve the debt crisis emerges at a summit later this week.

The unprecedented warning also brought to a halt a rally in global equities that began last week, with the MSCI world equity index down about 0.3 percent.

The timing of the announcement and the inclusion of Germany in the group facing a ratings cut surprised many in the markets, and put pressure on the upcoming gathering of leaders to come up with a solution to the region's debt crisis.

It highlights the importance of the weekend, said Jim O'Neill, the chairman of Goldman Sachs Asset Management.

If they (EU leaders) come up with something along the lines they have been talking about, I doubt they (S&P) will go through with it, he added.

The impact of the warning was limited by the bearish view many investors already hold about the outlook for the region.

European stocks as measured by the FTSEurofirst 300 were around 0.8 percent lower, off a five-week high struck on Monday.

In the debt market bond yields across the Eurozone rose but top-rated German and French bonds did better than the debt of the region's more peripheral countries.

(S&P's move) casts a pall over whether the EFSF (Europe's bailout fund) will maintain its triple-A status, putting more pressure on the European Central Bank to fill the gap, said Nick Stamenkovic, rate strategist at RIA Capital Markets.

A 10-year bond issued by the EFSF saw its price edge up slightly. Eurozone leaders agreed last week to increase the capacity of the rescue fund.

The single currency, which initially moved sharply lower against the U.S. dollar, was down around 0.2 percent to around $1.3375.

S&P has told us what we already knew, said Sebastien Galy, FX strategist at Societe Generale. Most investors are anyways bearish on the euro.

The EU said on Tuesday the euro zone's economy barely grew in the third quarter, giving grounds for the ECB to cut rates later this week.

Spot gold prices were also lower dipping 0.2 percent to around $1,718.64 an ounce.

DOWNGRADE THREAT

S&P said it had told 15 of the 17 Eurozone countries, including Germany, France and four others with the top AAA credit rating, that it might downgrade them within 90 days, depending on the outcome of Friday's summit.

The warning took the sheen off a Franco-German agreement, which the two nations plan to put before the other member states at the summit to impose budget discipline across the currency area through European Union treaty changes.

Elsewhere, the IMF approved a 2.2 billion euro ($3 billion) tranche of aid for Greece, which was seen as taking the threat of an imminent default off the table.

The Reserve Bank of Australia, citing Europe's woes as a key factor, cut interest rates by 25 basis points and left the door open for more easing.

(Additional reporting by Kirsten Donovan and Anirban Nag; editing by Anna Willard)