By: Barbara Zigah

S&P, the ratings agency, downgraded Spain’s sovereign debt, a move which effectively put fear back into the markets that the Eurozone’s contagion was, indeed, spreading. The agency cited growth concerns and other risks faced by the country’s banks to justify the downgrade to AA-.

As a result, in early Asian trading the Euro slipped lower against the U.S. Dollar, but has thus far managed to hold onto weekly gains which amounted to some 2.7%. If maintained, that would make this the strongest week for the Euro in nearly 9 months.

As reported at 12:34 p.m. (JST) in Tokyo, the Euro was trading at $1.3754, a decline of 0.2%. Analysts point out that Euro stop-loss offers lurk near $1.3720 and $1.3680, and resistance is seen at around $1.3834, the 1-month peak struck this week. One trader in Tokyo believes the Euro is poised to test the downside now.

Other ratings downgraded also occurred besides the one to Spanish sovereign debt; Fitch cut some European banks including Switzerland’s UBS AG, while several were placed on their negative watch list. Growing concerns over bank capitalization continues to hang heavy over market sentiment. Officials from the European Union said yesterday that new stress tests may compel some banks to shore up their balance sheets, but that they will likely have six months to accomplish the task.