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ATHENS, Jan 14 (Reuters) - Standard & Poor's Ratings Services cut its credit ratings on Greece's sovereign debt on Wednesday, due to falling economic competitiveness and a rising fiscal deficit worsened by the global crisis.
The news sent bond spreads sharply wider and the euro fell to below $1.31 versus the dollar.
S&P cut Greece's sovereign rating, already the lowest in the 16-nation euro zone, to A-/A-2 with a stable outlook from A-/A-1.
Greece was one of four euro zone countries warned by S&P in the last few days that it could cut its ratings for them as the credit crunch and rising unemployment worsened their economic outlook. Ireland, Spain and Portugal were the other countries to be warned.
"The ongoing global financial and economic crisis has in our opinion exacerbated an underlying loss of competitiveness in the Greek economy," S&P credit analyst Marko Mrsnik said.
"In our opinion, the ongoing slowdown in credit growth will likely lead to a deceleration in domestic demand, thus increasing the risk of a recession and a possibly protracted adjustment."
S&P said Greece was entering the downturn with a fiscal deficit of around 3.5 percent of GDP, after repeated government failures to bring expenditure under control and reduce high debt levels despite years of economic growth averaging four percent.
Following the announcement, spreads in Greek 10-year government bonds over benchmark German Bunds widened by about 10 basis points to a session high of 246.9 basis points, a whisker shy of Tuesday's peak of 247 basis points. The euro fell as low as $1.3094, a new one-month low. (Reporting by Daniel Flynn; editing by Stephen Nisbet)