Agency cuts Ireland's credit rating

Moody's cut Ireland's credit rating yesterday, warning the country still faces a slow climb out of recession after nearly two years of austerity as the cost of rescuing its banking sector mounts.

The rating agency's one-notch drop to Aa2 came a day ahead of a scheduled sale of up to 1.5 billion euros (1.27bn) of Irish debt, putting Moody's on a par with rival agency Standard and Poor's AA rating and still one grade above Fitch.

The downgrade, which a minister said provided no surprises but which briefly weakened the euro against the dollar and hit European stocks, prefaced a sale of six and 10-year bonds worth between 1 billion and 1.5 billion euros at Ireland's regular monthly auction.

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Moody's also changed its outlook to stable from negative, and much of the hit to Irish bond markets was short-lived.

The spread of Irish 10-year bonds against their German equivalent widened 10 basis points yesterday from Friday to 301 basis points, their highest since July 2, before narrowing to 295 bps.

"The timing isn't great, given the bond auction and certainly this will add to the premium that will need to be paid to raise money," Alan McQuaid, chief economist at Bloxham, said.

Dietmar Hornung, Moody's lead analyst for Ireland, said the downgrade was "primarily driven by the Irish government's gradual but significant loss of financial strength".

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