Ratings agency Moody's has downgraded Italy's government bond rating by two notches over concerns that deteriorating financial conditions in Europe will lead to a sharp rise in borrowing costs.
The downgrade, to Baa2 from A3, lowered Italy's rating to two notches above junk-bond status and came just hours before Rome's attempt to raise 5.25 billion euros in a government bond auction.
Moody's projected the Italian economy to shrink by 2 percent this year, which would make it harder for Italy to meet fiscal targets.
Among risks from outside the country, Moody's cited the possibility of a Greek exit from the euro currency union and a worsening crisis among Spanish banks.
Earlier this week, European financial ministers agreed to a 30 billion euro ($37 billion) bailout for Spain's banks.
Based on reporting by AFP and AP