Standard & Poor's cut Spain's sovereign credit rating to BBB-minus, just above junk territory, on Wednesday, citing a deepening economic recession that is limiting the government's policy options.
The S&P downgrade comes with a negative outlook reflecting the credit ratings agency's view that there are significant risks to economic growth and budgetary performance, plus a lack of clear direction in euro zone policies.
The country has been in recession since earlier this year, its second economic contraction in just a few years, and unemployment hit 25 percent with a return to job creation still two years away.
Falling tax revenue and rising costs of unemployment benefits are confounding the government's efforts to hit a 2012 deficit reduction target of 6.3 percent of gross domestic target agreed with the European Union.
