S&P, Fitch lower Portugal's ratings after parliament rejects austerity plan

Standard & Poor's and Fitch cut Portugal's sovereign credit ratings as the prohibitively high yields investors are demanding to hold Portuguese debt pushed the country ever closer to needing a bailout. S&P said early Friday it had downgraded Portugal's long-term rating to BBB from A- as a result of the Portuguese parliament's rejection of the government's latest batch of austerity measures, a move that sparked the resignation of Prime Minister José Sócrates. "In our view, the resulting increased political uncertainty could hurt market confidence and heighten Portugal's refinancing risk," S&P said. Fitch lowered its long-term ratings for Portugal to A- from A+, citing similar reasons to S&P. "The downgrade reflects increased risks to policy implementation and fiscal financing in light of the Portuguese parliament's failure to pass fiscal consolidation measures and the resignation of the prime minister on March 23," Fitch analyst Douglas Renwick said in a statement. Both Fitch and S&P's ratings are staying under review, suggesting there could be further cuts. Moody's cut Portugal's rating to A3 from A1 on March 15, but on Friday reiterated its current levels citing the commitment of Portugal's two main political parties ? the Socialists and the Social Democrat Party (PSD) ? to reining in the country's public deficit. After S&P and Fitch's rating action the yields on Portuguese government debt hit euro-era highs. The rate on the benchmark 10-year government bond at one point moved close to 8 percent for the first time since the single-currency bloc was established in 1999, with the spread with the German equivalent widening further. Spain's risk premium on Friday remained below 200 basis points. Attending the European summit in Brussels, Spanish Prime Minister José Luis Rodríguez Zapatero on Thursday pledged further reforms as he sought to stem any contagion from the Portuguese crisis. These include amending the Budget Stability Law to tie spending to nominal GDP growth. Portugal is seeking to borrow some 20 billion euros this year and faces the task of refinancing some 10 billion euros in maturing bonds in the second quarter of the year. Fitch's Renwick said the failure by parliament to pass the austerity measures had "significantly increased the chances of Portugal requiring multilateral support in the near term, given its impaired ability to retain affordable market access." Experts believe Portugal may need a bailout in the region of 75 billion euros. But in a defiant mood, Sócrates on Friday insisted Portugal could still finance itself in the market and would not follow the path of Greece and Ireland in seeking external assistance to resolve its debt crisis. The president of the Eurogroup, Luxembourg Prime Minister Jean-Claude Juncker on Friday said whoever governs in Portugal will have to introduce measures to trim the shortfall in the country's finances. The measures rejected by the Portuguese parliament, which include a special levy on pensions of over 1,500 euros, aim to reduce the public deficit to 4.6 percent of GDP this year and to 3 percent the following year