S&P’s cuts Italy on weak growth.

Italy’s credit rating was cut by Standard & Poor’s, the country’s first downgrade in five years, as Greece’s worsening fiscal crisis fans concern that contagion will engulf countries such as Spain and Italy.

S&P lowered its rating last night to A from A+, saying that weakening economic growth, a “fragile” government and rising borrowing costs would make it difficult to reduce Europe’s second-biggest debt load. The yield on Italy’s benchmark 10-year bond rose 3 basis points today to 5.619 percent, 385 basis points more than similar German debt.

The European Central Bank was forced to buy Italian and Spanish bonds last month after their yields surged to euro-era records on concern they’ll be the next victims of the two-year- old debt crisis that led to bailouts for Greece, Ireland and Portugal. Moody’s Investors Service is set to decide in the next month whether to cut ratings on Italy and Spain, and as Greece tries convince international creditors it deserves the next bailout payment to stave off a default.

“It’s a reminder that we’ve had the market in control but policy makers have been slow to think in any forward-looking context,” said Adrian Foster, head of financial-market research for Asia at Rabobank Groep NV in Hong Kong. “Policy makers across the euro zone have been well and truly asleep at the wheel for quite a while now and are only taking measures when the market pushes them to it.”

Bloomberg

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