Fitch rating cut piles pain on troubled Greece

Fitch Ratings cut Greece's debt to BBB+ on Tuesday with a negative outlook, the latest blow to the troubled euro zone country, driving its bonds, banking shares and the euro itself lower.

The cut was the first time in 10 years a major ratings agency has put Greece below an A grade, citing fiscal deterioration in one of the 16-member currency bloc's most indebted member states.

"The downgrade reflects concerns over the medium-term outlook for public finances given the weak credibility of fiscal institutions and the policy framework in Greece, exacerbated by uncertainty over the prospects for a balanced and sustained economic recovery," Fitch said in a statement.

Markets' broader concerns are that deeper troubles for Greece would also throw the spotlight on other euro zone borrowers who have been hit hard by the financial crisis.

Fitch had already cut Greece to A- with a negative outlook at the end of October, after the new Socialist government revealed deficits were much bigger than previously reported.

The euro extended losses to hit a day's low, while bund futures hit a one-week high and Greek bank shares' falls on the day reached almost 8 percent after the Fitch statement on Tuesday. [nGEE5B718I]

The premium investors demand to hold 10-year Greek government bonds rather than euro zone benchmark German Bunds widened to around 230 basis points, its widest since April 21.

"Fiscal slippage relative to current plans could result in a further downgrade, while the emergence of a much stronger policy commitment and its consistent implementation could see the Outlook revised to Stable," Fitch said in the statement.

Fitch's cut adds to a series of bad news for Greece, whose markets have taken a beating in the past weeks over fiscal worries and which faces increasing borrowing cost to cover a ballooning debt. Greece is under negative watch by Moody's and Standard and Poor's.