Rating agency Moody's put Spain on review for a possible downgrade on Friday, adding to concerns that a Greek rescue package has done little to halt the spread of Europe's debt crisis.
The euro sank and German Bunds jumped after Moody's put Spain's Aa2 government bond ratings on review, citing concerns over growth and saying funding costs would continue to be high in the wake of euro zone leaders deal on Greece last week.
Spain's rating is still set at a high investment grade, far above those of Greece, Portugal and Ireland -- the countries bailed out in the crisis so far.
But while Moody's said any cut for Spain would likely be limited to one notch, it said the Greek package had signaled a clear shift in risk for bondholders across the euro zone.
"The rating agency ... notes that challenges to long-term budget balance remain due to Spain's subdued economic growth and fiscal slippage within parts of its regional and local government sector," the agency said.
Its current rating for Spain is in line with S&P's AA setting, while Fitch has the country one notch higher at AA+.
International investors are concerned the euro zone's fourth largest economy, hamstrung by anemic growth rates and high unemployment, will fail to put its fiscal house in order and need a Greek-style bailout. Nerves about that have sent bond yields to their highest level in over a decade.
The euro fell more than 40 pips against the dollar on Moody's announcement, nearing morning lows at $1.4281. Bund futures rose over half a point while early indications were of higher Spanish yields.
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