Instant View: Spain downgraded by Fitch

NEW YORK (Reuters) - Fitch Ratings downgraded Spain's credit ratings by one notch on Friday, saying the country's economic recovery will be "more muted" than the government forecast due to its austerity measures.

KEY POINTS: * The ratings agency cut Spain's long-term foreign- and local-currency issuer default ratings to AA-plus from AAA. The outlook on the new ratings is stable. * "The downgrade reflects Fitch's assessment that the process of adjustment to a lower level of private sector and external indebtedness will materially reduce the rate of growth of the Spanish economy over the medium-term," Fitch analyst Brian Coulton said in a statement.

COMMENTS:

LAWRENCE GLAZER, MANAGING PARTNER OF MAYFLOWER ADVISORS IN BOSTON:

"Treasuries prices are up. There is a reaction, but it is not a dramatic reaction (to the downgrade of Spain).

"It looked like you were getting some stabilization in high yield and then you are thrown this ahead of the weekend.

"I don't know why they didn't wait to downgrade Spain, or do it earlier. Doing it after lunch on a Friday ahead of a long weekend in the summer is not a recipe for stability for markets.

"For those that are surprised by the news, they will be a lot less surprised when they come back to work on Tuesday than they are now."

DIRK SCHNITKER, CM CAPITAL MARKETS BOLSA, MADRID, SPAIN:

"Everyone was already wondering which rating agency was going to be next to downgrade Spain, but given how delicate markets are, it could still spook some investors.

"However, the stable outlook should be a good sign ... it shows the situation is only worth a downgrade, but this is about as good as the bad news is going to get. There's still more to come from Spain."

JOSE LUIS MARTINEZ, STRATEGIST, CITIGROUP, MADRID

"The rating downgrade was somewhat expected considering the difficulties and challenges facing the Spanish economy. But Spain isn't an isolated case. This is more general and the age of maximum rating levels on an international level is in extinction."

STERLING SMITH, ANALYST AT COUNTRY HEDGING INC, ST. PAUL, MINNESOTA:

"This is removing the calm from the storm. The fundamental problems that are going on have not gone away or changed at all this week. We had just simply moved into a holiday mode, and this served as a reminder to people that there is still trouble out there.

"The copper market is experiencing a late sell-off tied to the instantaneous hit to equity markets when the news came out."

DAN COOK, SENIOR MARKET ANALYST, IG MARKETS INC., CHICAGO:

"We can see the dollar strengthen particularly against the euro. They did this on a day when the market is already paper-thin so we may not see the full effect until we open after the weekend."

TULLIA BUCCO, ECONOMIST, UNICREDIT, MILAN

"All in all, no big news. Recent austerity measures are credible and go in the right direction, but growth remains investors' main concern. Fitch acknowledges that the Spanish government has shown strong commitment to reduce the budget deficit, but notes that poor growth prospects in the medium term will push the debt/GDP ratio up to almost 80 percent versus 40 percent before the onset of the crisis."

MARK WAGGONER, PRESIDENT, EXCEL FUTURES, BEND, ORE:

"Oil futures are down a lot and it's all because of the news of Fitch downgrading Spain's credit rating. Ahead of the long weekend, crude futures have latched on to the stock market which is falling on euro-zone worries. If you take a look at the S&P 500 chart and the NYMEX crude chart, they have been moving in lock-step as the news developed."

CHIP HANLON, PRESIDENT DELTA GLOBAL ADVISORS, INC. IN HUNTINGTON BEACH, CA:

"I don't see how this could've been unexpected since Spain's troubles are arguably worse than Greece's. The debt-to GDP situation there is critical. It should exacerbate the recent trend of tremendous volatility in global stocks as the world wrestles with the idea of a debt-based collapse. There is also the idea of a global recovery led by the U.S. Those competing viewpoints will create the volatility.

"I'm expecting continued strength in the dollar versus the euro on this, and gold will continue to do well as a safe haven."

JOHN PRAVEEN, CHIEF INVESTMENT STRATEGIST AT PRUDENTIAL INTERNATIONAL INVESTMENTS ADVISERS, NEWARK, NEW JERSEY

"The markets are reacting negatively. The selling is accelerating in the markets. If Moody's or S&P also downgrade Spanish debt, then we will probably have a very negative reaction as Spain is considered much bigger than Greece.

"We are on that debt downgrade watch. The European debt problem is going to continue to have a shadow on the markets."

WIN THIN, SENIOR CURRENCY STRATEGIST, BROWN BROTHERS HARRIMAN, NEW YORK:

"Fitch downgraded Spain to AA-plus from AAA, and inexplicably with a stable outlook. Stable? Spain should be downgraded multiple notches. This comes a few weeks after S&P downgraded Spain one notch to AA from AA-plus and kept a negative outlook. Spain so far has gotten off relatively easy. However, Spain remains way out of line with our own model, which puts Spain at A/A2/A vs. actual ratings of AA/Aaa/AA. Believe it or not, Moody's still has Spain as a triple-A credit. We don't think that can last, and we stress again that we see multiple downgrades ahead for Spain.

"Indeed, Spain is the 800-pound gorilla in the room. Greece and Portugal are small countries, but Spain is about five times their size with regards to GDP.

"The euro is of course taking it on the chin and has given up all of today's gains and is flirting with 1.23 level. We commend the ratings agencies in general for the impeccable timing of their announcements, coming today in holiday-thinned conditions as both U.S. and UK shut down ahead of Monday holidays. In general, this should serve as a reminder that while the news stream out of Europe was generally quiet this week, the potential and risk is for more bad news to emerge from time to time and roil markets. Spain is coming increasingly into the crosshairs due to negative developments in its banking system, and the lines of contagion from Greece are growing."

MARKET REACTION: STOCKS: U.S. stock indexes fell. BONDS: U.S. Treasury debt prices dropped. DOLLAR: U.S. dollar rose against the euro.