Moody's warns of new rating blow for Spain within months

Spain was threatened with another blow today as credit rating agency Moody's warned it may downgrade the country because of its paltry economic growth prospects.

Moody's said it was considering cutting Spain's rating by one notch to Aa3, and it could happen within the next three months.

Spain's rating was already knocked down by a notch to Aa2 in March.

The news proves that last week's bailout of Greece failed to stabilise European economies or reduce the risk of contagion. In fact, Moody's said the Greek package meant funding pressures on Spain were likely to get worse. The Athens deal set a "precedent", Moody's added, in asking the private sector to swallow losses on their investments in government bonds.

The agency said Greece's second bailout had "signalled a clear shift in risk for bondholders of countries with high debt burdens or large budget deficits."

Meanwhile, the US economic crisis continued today when a vote on the Republican Bill to increase the country's debt ceiling and slash spending to avert default was delayed. Congress must raise the US debt limit by a deadline of Tuesday.