Heavily indebted eurozone states fought back against warnings that they were next in line to face credit trouble as fears grew that Greece would default on its debt.
Germany sought to shield Spain and Portugal from comparisons with Greece, but the view that the debt crisis in Athens was spilling over mounted when ratings agency Standard & Poor's cut Spain's sovereign credit rating.
"As regards whether there is a comparison of Spain and Portugal to Greece, we do not see one," finance ministry spokeswoman Jeanette Schwamberger told a regular government news conference ahead of Spain's ratings downgrade. "It is not a comparable situation," she stressed.
The borrowing costs of what some analysts call PIIGS -- Portugal, Ireland, Italy, Greece and Spain -- have been rising as investors fret over their high public deficits, which are well above the eurozone limit of 3.0 percent.
The Greek public deficit reached 13.6 percent of gross domestic product last year. Ireland's deficit exceeded 14 percent, Spain's reached 11.2 percent and Portugal's grew to 9.4 percent. The Italian shortfall reached 5.3 percent.
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In Madrid, Spanish Prime Minister Jose Luis Rodriguez Zapatero told parliament Wednesday that the country's economy was recovering.
"There are signs showing that our economy is improving -- that we are starting to put the recession behind us and that it is likely that in the first quarter, we would already be posting positive growth," he said.
But its stock market closed 2.99 percent lower, dragging other key markets down, after S&P cut the country's long-term sovereign credit rating to "AA" from "AA+" and said the outlook was negative.
Spain's downgrade came a day after the ratings agency cut Portugal's long-term credit rating to A- from A+.
It also warned that the outlook was negative in light of the country's fiscal and economic structural weaknesses.
The move sent Lisbon's stock market plunging Tuesday and fueled speculation that the country would lurch into crisis like Greece. Portugal's Socialist government and the opposition came out in a show of unity on Wednesday to shore up confidence.
"The government and the main opposition party have decided to work together to respond to what constitutes an unfounded speculative attack against the euro and the Portuguese sovereign debt," Prime Minister Jose Socrates said.
Italy, whose public deficit nearly doubled to 5.3 percent of output in 2009, also sought to reassure markets that the economy was not in trouble.
"Italy is safe, our government bonds are excellent and they are in even in demand overseas," Italian government spokesman Paolo Bonaiuti said.
"International speculation is waiting in ambush," Bonaiuti said on public television, a day after Rome issued bonds to raise 13.5 billion euros in what analysts described as difficult conditions.
"We are emerging... from the world financial crisis, but a great speculative game underneath this storm has unfortunately not been fully overcome or defused."
The interest rate demanded by investors to hold Portuguese, Italian, Irish and Spanish debt rose again on Wednesday as the yield on Greek bonds reached punitive levels at around 10 percent.
The yield, or return, on 10-year bonds from Portugal rose to 5,79 percent, from Ireland to 5,26 percent, from Italy to 4,12 percent and from Spain to 4,11 percent.
Analysts note that until a firm strategy emerges to deal with Greece's crisis, the markets are likely to remain sceptical on countries with high debt.
"Markets dislike uncertainty and until they see a workable strategy for the Greek economic mess and that the likelihood of defaults occurring in Portugal and Spain have subsided they are unlikely to rest," said Howard Wheeldon, senior strategist at BGC Partners.
