Downgrade for Italian banks

In a statement released late on Monday, Moody's said the move reflected the fact that banks were struggling in a tough economic climate.

The New York-based agency noted that the country had fallen back into recession, posing a threat to Rome's recovery program and efforts to reduce public debt. Banks were struggling with losses on loans, a need for fresh funds and falling profits, it said.

"The ratings for Italian banks are now amongst the lowest within advanced European countries, reflecting these banks' susceptibility to the adverse operating environments in Italy and Europe," said a statement.

Particularly problematic was the fact that credit extensions were rising while earnings for financial institutes were falling, it noted.

Moody's said the outlook for the banks was "negative," indicating that further downgrades were likely.

It said that banks were particularly vulnerable to the renewed recession in Italy, given their already high levels of exposure to problem loans and weakened profitability.

Bigger banks fare better

Larger banks such as UniCredit and Intesa Sanpaolo were only downgraded one step, from A2 to A3, but a number of smaller institutions were downgraded by four steps.

Ten banks saw their ratings cut from investment grade to junk.

The news came on another day of bad news on European markets, with equities slumping and the euro tumbling to its lowest point against the US dollar since January, with the euro worth $1.283.

Italian benchmark yields rose to 5.697 percent, pushing up the amount of interest that Rome would have to pay to borrow money.

Italian Prime Minister Mario Monti, whose technocrat government has imposed a tough austerity program, has seen his approval rating plunge from 71 to 38 percent since taking office in November.

rc/ncy (AFP, dpa, Reuters)