Fitch Ratings cut Spain's long-term credit rating to BBB andleft it two notches from junk, citing the cost of recapitalizingthe country's banking industry and a lengthening recession.

Spain, which saw its rating lowered from A, may need as much as100 billion euros ($126 billion) to bolster its banking system,compared with an earlier estimate of about 30 billion euros, Fitchsaid today in London. The Spanish economy is set to remain inrecession through 2013, the ratings company added, havingpreviously forecast a recovery for next year.

“The much reduced financing flexibility of the Spanishgovernment is constraining its ability to intervene decisively inthe restructuring of the banking sector and has increased thelikelihood of external financial support,” Fitch said in astatement. “Spain's high level of foreign indebtedness has renderedit especially vulnerable to contagion from the ongoing crisis inGreece.”