Italy's credit rating was cut by Standard & Poor's, the country's first downgrade in five years, as Greece's worsening fiscal crisis fans concern that contagion will engulf countries such as Spain and Italy.

S&P lowered its rating last night to A from A+, saying weak economic growth, a "fragile" government and rising borrowing costs would make it difficult to reduce Europe's second-biggest debt. The yield on Italy's 10-year bond rose 8 basis points to 5.662 percent, 385 basis points more than similar German debt. The cost of insuring Italy against default rose to a record.

The European Central Bank was forced to buy Italian and Spanish bonds last month after their yields surged to euro-era records on concern they'll be the next victims of the two-year-old debt crisis that led to bailouts for Greece, Ireland and Portugal. Moody's Investors Service is set to decide in the next month whether to downgrade Italy and Spain, while Greece struggles to convince international creditors it deserves its next bailout payment to stave off a default.