Brazil's sovereign rating was cut to junk by Standard &Poor's, taking away the investment grade the country enjoyed forseven years, as President Dilma Rousseff's struggles to shore upfiscal accounts amid a faltering economy.

The country's rating was reduced one step to BB+, with anegative outlook, S&P said in a statement after markets closed.Brazil's largest U.S. exchange-traded fund tumbled 6.6 percent inlate trading along with American depositary receipts for Petrobras,the state-controlled oil company.

The downgrade, and S&P's warning that another cut ispossible, puts pressure on the economic team led by FinanceMinister Joaquim Levy to win passage of measures that would shoreup the country's fiscal situation by cutting spending or raisingtaxes. Rousseff has been unable to find support for her initiativesamid an investigation into corruption at the state- controlled oilcompany that allegedly occurred while she was its chairman, sendingher popularity to a record low and generating calls for herimpeachment.

“The downgrade could be a wakeup call but the politicalsituation is so bad that it's difficult to resolve, so its a darkpath ahead,” Daniel Weeks, the chief economist at Garde AssetManagement, said from Sao Paulo. “Markets will take this as anegative, and it will probably drag down emerging markets at aglobal level.”

Brazil's government said in August it forecasts a fiscal deficitin 2016 of 30.5 billion reais ($7.9 billion), or about 0.5 percentof gross domestic product. That compares with a targeted surplus of2 percent at the beginning of this year and a revised objective of0.7 percent announced in July. The country's gross debt as apercentage of its economy climbed to 65 percent in July from 51percent at the end of 2011.

“The political challenges Brazil faces have continued to mount,”S&P said in the statement accompanying its decision. “Thenegative outlook reflects what we believe is a greater thanone-in-three likelihood of a further downgrade due to a furtherdeterioration of Brazil's fiscal position.”

Because of internal rules, some institutional investors such aspension funds can't hold securities rated junk, which could lead toa selloff of Brazilian assets. Both Fitch Ratings and Moody'sInvestors Service rate the country investment grade, which maylimit the immediate impact of S&P's move. S&P firstincreased Brazil's classification to investment grade in April2008.

Brazil's real may extend a 30 decline that has made it the worstperforming emerging-market currency this year, and also spurfurther weakness in other riskier assets, according to RayAttrill, co-head of currency strategy at National AustraliaBank Ltd. in Sydney. The real had climbed over the past two daysafter tumbling to a 12-year low on Sept. 4, when it slid to3.8434 per dollar. A further drop of 4 percent would take it pastthe all-time low of 4.0040 per dollar reached in 2002.

“S&P downgrading Brazil to junk is a negative developmentfor the real that came after the local market close, so that mightbe a negative force in EM more broadly today,” Attrill saidThursday.

Brazil canceled a weekly auction of local government debtthis month for the first time in more than a year and a half as aselloff in the country's assets drove up borrowing costs, while itsbond risk reached a six-year high this week as measured bycredit-default swaps. The yield on its benchmark 10- year debt hasclimbed more than 2 percentage points since June 30 and reached15.08 percent last week. The Ibovespa stock gauge is down 35percent this year in dollar terms, the fourth-worst performanceamong 93 global benchmarks tracked by Bloomberg.

Petroleo Brasileiro SA's American depositary receipts fell 8.6percent to $4.65 as of 7:50 p.m. in New York. The iShares MSCIBrazil Capped ETF sank 6.6 percent to $21.94.

“It came a bit earlier than expected,” Alberto Ramos, the chiefLatin America economist for Goldman Sachs Group Inc., said in aninterview. “It is partly priced in, but not entirely.”

Latin America's biggest economy now stands at the same ratinglevel as Russia, Hungary and Indonesia, according to S&P.

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