2010-07-20 10:16

DUBLIN - Ireland had its credit rating cut one level at Moody's Investors Service, which cited a "significant loss of financial strength" and the cost of bank bailouts.

The company lowered Ireland to 'Aa2' from 'Aa1' and moved the country to a "stable" from a "negative" outlook, it said in a statement.

Ireland lost its top rating at Moody's in April 2009. Irish bonds fell after the downgrade.

The euro has fallen 10 percent versus the dollar this year on concern that widening budget deficits in countries including Ireland, Spain and Greece could lead to a default.

While Irish Finance Minister Brian Lenihan said last week that the country's fiscal position is "stabilizing", the cost of aiding the banking industry is adding to pressure on the public finances even as the economy emerges from recession.

"It's a gradual, significant deterioration, but not a sudden, dramatic shift," said Dietmar Hornung, Moody's lead analyst for Ireland. Overall, "we have a constructive view. We agree Ireland has turned the corner."

The premium investors charge to hold Irish 10-year debt over the German bund, Europe's benchmark, widened 8 basis points to 291 basis points on Monday.

The yield reached 306 points in May, the widest since the introduction of the euro in 1999.

Bank of Ireland Plc, the country's biggest bank, fell 2.6 percent to 67 cents at 9:31 am in Dublin, while Allied Irish Banks Plc dropped 2.8 percent to 85.5 cents.

Bloomberg News