* 30 Spanish banks downgraded by one or more notches
* No cut at big banks Santander, BBVA, La Caixa
* Investors see limited contagion from Portugal
(Adds details, analysts, context)
By Elisabeth O'Leary
MADRID, March 24 (Reuters) - Ratings agency Moody's downgraded 30 Spanish banks on Thursday, citing a combination of pressure on the country's sovereign debt and declining market share of smaller banks as the financial sector consolidates.
The cut in ratings of the banks followed the downgrade of Spain sovereign debt rating on March 10 by the agency to Aa2, but left unchanged ratings at the largest banks Santander (SAN.MC), BBVA (BBVA.MC) and savings bank La Caixa.
The Moody's downgrade coincided with a growing crisis in neighbouring Portugal where the prime minister resigned on Wednesday after failing to win approval for austerity measures, but analysts see little effect on Spain for now.
Spain's banks are seen as a liability for the government's fiscal stability and economists estimate they could need a bailout for as much as 100 billion euros ($140.7 billion) because of high exposure to the collapsed building sector.
The Bank of Spain has said the capital requirements of the banking system is around 15 billion euros, while Moody's said the figure is more likely to be between 40 billion and 50 billion euros when future losses are included.
The impact of the downgrades was muted -- the banks index .IBAN.BC dropped 0.53 percent in morning trade -- since it was expected after Moody's downgraded Spain's sovereign debt.
"This should speed up the deleveraging process of the sector while also contributing to maintain high competition levels for deposits in the market," BPI analyst Carlos Peixoto said in a note.
PORTUGAL EFFECT LIMITED
The resignation of Portugal's prime minister on Wednesday after he failed to get approval for fresh austerity measures and the increasing chance that Lisbon will need outside help to put its economic house in order has compounded worries about Spain.
Spain's banks had total exposure of $98.3 billion to Portugal at the end of the second quarter of 2010 according to the Bank of International Settlement, around a third of Portugal's foreign held debts.
"We don't see a risk of contagion for Spain, the risk is really derived basically from the Spanish financial system's exposure to Portuguese debt," said Banesto analysts in note to clients.
Spanish and Italian government bonds had held up well on Wednesday and outperformed other peripheral issuers on Thursday, suggesting wider contagion remains limited for now. [ID:nLDE72N099]
Economy minister Elena Salgado said on Thursday that the government's fiscal effort along with its banking and labour reforms had helped differentiate Spain's standing in the markets from Portugal.
"The markets recognise these efforts and achievements in the Spanish economy," Salgado said.
The government has forced Spain's savings banks into a round of consolidation and recapitalisation to alleviate concerns that they will need a large injection of state funds.
"Basically Moody's has pointed to the weak points in the domestic banking business which we all know such as weak financial margins," said Renta4 analyst Nuria Alvarez.
"The two top banks Santander and BBVA have kept their ratings unchanged because of their international expansion and less exposure to the domestic market," she said. (Additional reporting by Fiona Ortiz, Judy MacInnes, Paul Day and Tracy Rucinski, editing by Toby Chopra)