Italy's credit rating was cut by Standard & Poor's, thecountry's first downgrade in five years, as Greece's worseningfiscal crisis fans concern that contagion will engulf countriessuch as Spain and Italy.

S&P lowered its rating last night to A from A+, saying weakeconomic growth, a “fragile” government and rising borrowing costswould make it difficult to reduce Europe's second-biggest debt. Theyield on Italy's 10-year bond rose 8 basis points to 5.662 percent,385 basis points more than similar German debt. The cost ofinsuring Italy against default rose to a record.

The European Central Bank was forced to buy Italian and Spanishbonds last month after their yields surged to euro-era records onconcern they'll be the next victims of the two-year-old debt crisisthat led to bailouts for Greece, Ireland and Portugal. Moody'sInvestors Service is set to decide in the next month whether todowngrade Italy and Spain, while Greece struggles to convinceinternational creditors it deserves its next bailout payment tostave off a default.

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