Portugal Adds Momentum to European Debt Crisis

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Moody's investors service cut Portugal's credit rating to "junk" status Tuesday, despite the country's efforts to work out its money problems in May with a bailout package.

The ratings agency warned that Portugal will likely follow Greece in needing a second rescue package.

The Moody's downgrade triggered new outrage in Portugal, where austerity measures over the past year have included tax hikes, pay freezes and welfare cuts.

One analyst told Reuters that the problems in Greece may be repeated in Portugal.

Portugal took a $112 billion bailout from its European partners and the International Monetary Fund earlier this year after jittery investors began charging steep returns on loans.

After the Moody's announcement, both Spain and Italy felt the effects of Portugal's worsening financial situation. Madrid's main stock index was down 1.5 percent in midday trading while its bond yields rose.

In Italy, stocks were down 2 percent Wednesday on concerns that current spending cuts were not enough to resolve the country's high debt level.

"The increasing risk is Italy gets caught up further in the contagion, and the bond market vigilantes dictate a more abrupt pace for its adjustment," said Alan Ruskin, an analyst at Deutsche Bank.

Portugal is already in a recession, making reducing its debt load an even more difficult task.

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