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Moody's downgrades Telefonica over Spanish economy

MADRID (AP) -- Moody's ratings agency says it is downgrading its credit grade for Spanish telecommunications giant Telefonica, citing concern over the country's ailing economy.

Moody's says in a statement Wednesday it was cutting Telefonica S.A.'s main government bond rating to Baa2 from Baa1. It also dropped all Telefonica's guaranteed subsidiaries to Ba1 from Baa3.

The agency cites "concerns related to Spain's macroeconomic environment" and the impact this would have on consumer spending and Telefonica's domestic revenues.

Spain has said it will seek a rescue package for its troubled banking sector but investors are concerned that the country itself may in the end need a full state bailout like Greece, Ireland and Portugal.

Moody's downgraded Spain's government bond ratings to Baa3 from A3 earlier this month.