Ratings agency Moody's cut Ireland's bonds to junk status and warned of further downgrades as the eurozone economy struggles to pull out of a financial crisis.
Moody's Investors Service said it reduced Ireland's government debt ratings by one notch, to Ba1 from Baa3, saying there was a "growing possibility" that the country will need more bailout aid in late 2013 when the current European Union-International Monetary Fund support program ends.
Moody's also cited the "increasing possibility" that private sector holders of Irish debt will have to take part in any talks on a second rescue program "in line with recent European Union government proposals."
"The outlook on the ratings remains negative," the US-based international firm said. The agency's move came amid mounting worries that Greece could default on its debt despite a massive EU-IMF rescue.
EU governments were scrambling to fight debt contagion choking Italy and Spain and endangering the euro. Moody's reiterated its criticism published on Monday on proposals for banks to share the Greek burden.
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"The prospect of any form of private-sector participation in debt relief is negative for holders of distressed sovereign debt.
This is a key factor in Moody's ongoing assessment of debt-burdened euro area sovereigns," it said.
Moody's acknowledged that Ireland "has shown a strong commitment to fiscal consolidation and has, to date, delivered on its program objectives."
But it highlighted "that implementation risks remain significant," particularly due to the continued weakness in the Irish economy.
It also blamed "the shift in tone among EU governments" on the conditions they would require to offer further support to the deeply troubled countries of the region, which include Greece, Portugal, and possibly Spain and Italy.
Eurozone finance ministers have been locked in talks in recent weeks over a second bailout package for Greece, with much of the debate centred on whether private holders of Greek debt, mainly banks, should be forced to take a loss on the bonds.
