Standard and Poor's downgrades Italy's debt

Standard & Poor's has downgraded Italy's sovereign debt rating, citing economic, fiscal and political weaknesses in the eurozone's third-largest economy.

The rating agency says it has downgraded Italian debt to "A/A-1" from an "A+/A-1+" grade because of "Italy's weakening economic growth prospects".

It says Italy's weak governing coalition will "limit the government's ability to respond decisively" to events. "We believe the reduced pace of Italy's economic activity to date will make the government's revised fiscal targets difficult to achieve," S&P says in a statement.

Low employment rates, an inefficient public sector and modest foreign investment flows are cited as key drags on growth.

"In our view, the authorities remain reluctant to tackle these issues," the agency says.

S&P's rival rating agency Moody's has already indicated it is weighing its rating for Italy, which is currently at Aa2, two notches below Moody's top triple-A rating.

Italy has tried to reassure investors by announcing a new austerity package which should see the country balance its budget by 2013.