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Pain in Spain: rating down 2 notches

business Updated: Oct 19, 2011 23:06 IST
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A double-notch downgrade of Spain's credit rating has piled pressure on European leaders to make decisive progress on solving the region's debt crisis at an Oct. 23 summit.

Moody's cut Spain's bond rating to A1, from Aa2, the third of the major agencies to act in recent weeks and taking it a notch below the ratings of Standard & Poor's and Fitch.

The blow came just a day after Greeks began their biggest strike in years in protest at a painful austerity drive.

Markets are counting down to a summit of EU leaders on Sunday which Paris has said will deliver a decisive outcome while Berlin has been more cautious.

The Spanish rating cut, which highlighted the threat of contagion from debt-stricken Greece, tempered a sharp rally in shares on Wall Street late on Tuesday.

German Chancellor Angela Merkel warned that leaders would not solve the debt crisis at a single meeting. "These sovereign debts have been built up over decades and therefore one cannot resolve them with one summit but it will take difficult, long-term work. Nonetheless, I do think we will also be able to take relevant, important decisions," she said.

The hope is that Sunday's summit will agree new steps to reduce Greece's debt, strengthen the capital of banks with exposure to troubled euro zone sovereigns and leverage the euro zone's rescue fund.