Fitch Ratings said Thursday that it has downgraded Spain's Long-term foreign and local currency Issuer Default Ratings to 'BBB' from 'A'.

The Outlook on the Long-term IDRs is Negative.

Fitch said the downgrade of Spain's sovereign ratings by three notches reflects higher than expected fiscal cost of restructuring and recapitalising the Spanish banking sector, which it now estimates o be around EUR60 billion or as high as EUR100 billionn in a more severe stress scenario.

The downgrade also takes into account Fitch's current expectation that Spain will remain in recession through the remainder of this year and 2013, compared to its previous expectation that the economy would benefit from a mild recovery in 2013.

Spain's high level of foreign indebtedness has rendered it especially vulnerable to contagion from the ongoing crisis in Greece; and the much reduced financing flexibility of the Spanish government is constraining its ability to intervene decisively in the restructuring of the banking sector and has increased the likelihood of external financial support, Fitch noted as other reasons for its downgrade.

"The Negative Outlook primarily reflects the risks associated with a further worsening of the eurozone crisis, notably contagion from the ongoing Greek crisis," Fitch said in a statement.

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