Spain's credit rating was downgraded three steps by Moody's Investors Service, citing the nation's increased debt burden, weakening economy and limited access to capital markets.

The country was cut to Baa3 from A3 and is on review for further downgrade as it plans to borrow 100 billion euros ($126 billion) from European Union rescue funds to recapitalize its banking system, adding to the government's debt load, New York-based Moody's said today in a statement. Spanish Prime Minister Mariano Rajoy requested the rescue on June 9.

The key reason for the downgrade "is obviously the need of Spain's government to ask for external help," Kathrin Muehlbronner, a London-based senior analyst with the sovereign group at Moody's, said in a telephone interview. "In our view, that's not a sign of strength, it's a sign of weakness."