Standard and Poor's cuts Italy ratings one notch, outlook negative

The single currency skidded over half a cent to $1.3606 after S&P said the cut reflected its view of Italy's weakening economic growth prospects.

Italy's fragile governing coalition and policy differences within parliament will likely limit the government's ability to respond decisively to the challenging domestic and external macroeconomic environment, the agency said.

"In our opinion, the measures included in and the implementation timeline of Italy's National Reform Plan will likely do little to boost Italy's economic performance, particularly against the backdrop of tightening financial conditions and the government's fiscal austerity program," said S&P.

The move from S&P came as a surprise as the market had thought Moody's was more likely to downgrade Italy first. Moody's last week said it would take another month to decide on its action.