Downgrade for Spain’s credit rating

The ratings agency added that the country's high unemployment would remain a drag on the economy.

Last week, the Fitch agency also cut Spain's rating, a process that can raise a country's borrowing costs.

Standard & Poor's move comes as G20 finance ministers are due to meet on Friday to discuss the eurozone crisis.

On Thursday, Fitch downgraded the creditworthiness of UK banks Lloyds and RBS, and also Switzerland's UBS.

Late on Thursday, S&P followed Fitch by cutting Spain's rating by one notch.

S&P said in a statement: "Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain's growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain's main trading partners."

It noted the "incomplete state" of labour market reform, and added: "The financial profile of the Spanish banking system will, in our opinion, weaken further."

S&P also warned of a further ratings cut if Spain's economy worsens.

The euro drifted lower in Asian trade after S&P's move, though the currency was still on track for its biggest weekly rally since January.

The euro traded at $1.3741, having lost about a third of cent.

Earlier, Fitch cut credit ratings or signalled possible downgrades for several major European banks.

It downgraded UBS, Lloyd's Banking Group, and Royal Bank of Scotland.

It also placed on watch for possible downgrade Barclays, BNP Paribas, Credit Suisse, Deutsche Bank, and Societe Generale.

Last week Fitch fuelled concerns about the eurozone's debt crisis when it downgraded Spain and Italy, citing the "intensification" of the bloc's economic and financial problems.