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Credit rating cut in fears over cost of banks bail-out

IRELAND'S credit rating has been slashed once again as fears grow that investors will turn away from pumping money into the embattled economy.

Investors are now viewing the country as increasingly risky for investments due to the rising cost of bailing out the banks.

International ratings agency, Standard &Poor's (S&P) downgraded the Republic's credit rating, and that could make it more expensive for the Government to borrow money.

S&P cut the rating from AA to AA minus and placed its outlook as negative.

International markets fear that there is a one-in-four chance of Anglo Irish Bank defaulting on its debt.

Insurance against Ireland defaulting on the €85.32bn national debt has rocketed in recent weeks. Investors are concerned the cost of rescuing Anglo will exceed the maximum €25bn forecast by the Central Bank, which is equivalent to 15pc of the nation's annual gross domestic product and 75pc of its tax take.

Alan McQuaid, Chief Economist at Bloxham Stockbrokers said investors were unsure of the final tally for bailing out the banks.

"Despite the best efforts of Finance Minister Brian Lenihan and Central Bank Governor Patrick Honohan to allay fears of investors, if you can't put an exact figure on it, investors will get nervous," he said.

S&P's move came as Irish 10-year bonds fell and German bonds surged, widening the so-called yield spread to a record and surpassing the level it reached before the European Union and IMF announced a rescue plan in May.

S&P based its calculations on a €50bn estimate for bank recapitalisation, which the National Treasury Management Agency (NTMA), described as extreme, and Nama's €40bn liabilities.

The NTMA said that the Agency's borrowing programme for 2010 is 99pc complete and allowing for current cash balances of over €20bn, the Exchequer is fully funded into the second quarter of 2011.

"Investors continue to show strong demand for Irish Government debt with the most recent bond auction receiving bids for 3.4 times the maximum amount of bonds on offer," the NTMA pointed out.

"We believe this approach is flawed and note that S&P accepts that it does not accord with the internationally accepted measure of government net debt."