Spanish credit rating sends euro and European stocks down

European stocks and the euro fell Wednesday after Moody's Investors Service put Spanish bonds on watch for a ratings downgrade.

Moody's said that it was concerned that Spain's high refinancing needs made it vulnerable to "funding stress," meaning it might have difficulty rolling over its loans, and that there was a danger that the ratio of public debt could rise as the government recapitalizes the country's banks, which were battered after a decade-long property bubble burst, according to New York Times.

The dollar rose against other major currencies on Wednesday after upbeat U.S. economic data helped to send U.S. Treasury yields higher, while the euro fell after credit rating agency Moody's said it may downgrade Spain's debt.

Moody's put Spain's AA1 ratings on review for a possible downgrade, citing concerns about its mounting debt and 2011 funding needs, sending the euro down to test support just below $1.3300.

The euro shed 0.5 percent on the day to $1.3309 and headed down to 1.2808 Swiss francs, within range of a record low of 1.2765 francs set in September, Reuters informs.

"Given the situation after Ireland where the banks will have to be recapitalized to a much higher capital level, to a core Tier 1 ratio of 12 percent, we ran stress tests to see what that would mean in the context of Spain, if Spanish banks had to be recapitalized to a higher level in order to retain market confidence," Kathrin Muehlbronner, an analyst at Moody's, said in a phone interview, Bloomberg reports.