NEW YORK - Standard & Poor's is expected to announce later on Monday that it may downgrade the credit ratings of all 17 euro zone countries, two EU officials told Reuters.
The sources confirmed earlier reports that said S&P was preparing to place all the euro-zone countries --including those with top-tier AAA-ratings such as Germany and France -- on credit watch negative, which normally means a chance of downgrade within three months.
A spokesman for S&P said the agency had no comment.
U.S. stocks pared gains in late afternoon trade.
A credit-watch negative means that S&P, which stripped the United States of its AAA rating in August, is in the process of reviewing its ratings on those countries and is expected to decide whether to downgrade them in no more than three months.
The Financial Times earlier reported that S&P told the six euro zone countries with AAA ratings, including Germany and France, that the ratings agency would conclude its review "as soon as possible" after a crucial summit of euro zone leaders later this week.
"(I)t is our opinion that the lack of progress the European policymakers have so far made in controlling the spread of the financial crisis may reflect structural weaknesses in the decision-making process within the euro zone and European Union," S&P told the governments of the six countries, according to the FT.
Rivals Moody's and Fitch have already warned they could review the ratings of some AAA-rated euro zone countries, but S&P has so far maintained its view that the austerity measures being implemented by those countries would help them maintain their top-notch ratings.
(Writing by Walter Brandimarte; Editing by Chizu Nomiyama, James Dalgleish, Leslie Adler)
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