based agency said it was retaining a negative outlook for the eurozone third biggest economy as a result of poor data and political risks - at the same time warning about the threat posed of contagion from other heavily indebted European states, notably Spain and Greece. "The risk of a Greek exit from the euro has risen, the Spanish banking system will experience greater credit losses than anticipated, and Spain's own funding challenges are greater than previously recognized," Moody's said. It downgraded Italy's bond rating from A3 to Baa2. But European markets appeared to take the Moody's downgrade in their stride with bourses across the currency bloc gaining ground Friday, helped along by Italy's meeting the goal of cash it sought to raise in a new bond auction. Investors even lay aside their doubts about the euro with the common currency managing to nudge up in during the morning trading session. But it remained close to two-year lows of just over 1.22dollars. Shares in Italy initially fell 0.8 per cent following the downgrade, which also resulted in the yield on ten-year Italian bonds climbing about 12 basis points above 6 per cent ahead of the auction. The downgrade risked driving up the borrowing costs Italy faces on bond markets. Still, the Italian Treasury placed a new three-year bond incurring 4.65-per-cent yield, which was down from six-month high of 5.3 percent, which Rome had to pay in June. -- SPA
