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Spain's sovereign credit nears junk level

Standard & Poor's has cut Spain's credit rating by two notches to BBB-, just above junk level. The credit ratings agency has cited Spain's growing inability to tackle its deepening economic recession.

S&P opted to slash Spain's rating from BBB+ to BBB- on Wednesday, adding to the indebted nation's spiraling economic woes. The cut, which brings Spain just one level above junk territory, comes with a negative outlook, suggesting that it could be downgraded further over the medium term.

"The downgrade reflects our view of mounting risks to Spain's public finances, due to rising economic and political pressures," S&P said in a statement. "The deepening economic recession is limiting the Spanish government's policy options."

"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 added.

It went on to suggest that rising unemployment and tighter spending will likely intensify social unrest around the country.

Spain has been in recession since earlier this year, with unemployment rates currently nearing 25 percent. Spanish Prime Minister Mariano Rajoy announced a further 13 billion euros ($16.7 billion) of budget cuts in September, prompting angry protests around the country.

S&P's BBB- rating brings it in line with Moody's Investors Service's Baa3 rating, also just above junk status. Fitch Ratings has handed Spain a BBB rating, one notch higher than the other agencies' ratings but also with a negative outlook.

ccp/slk (AFP, dpa, Reuters)