Moody’s Investors Service cut the debt ratings of six European countries including Italy, Spain and Portugal, and said it may strip France and the UK of their top AAA ratings, citing Europe’s debt crisis.

Spain was downgraded to A3 from A1 yesterday, Italy to A3 from A2 and Portugal to Ba3 from Ba2, all with negative outlooks. Slovakia, Slovenia and Malta also had their ratings lowered.

“Policymakers have made steps forward but we do not think they have done enough to reassure the market that we are on a stable path,” said Alistair Wilson, chief credit officer for Europe at Moody’s in London. “What will guide long-term ratings is the clarity and the performance of policy makers and the macro picture.”

The euro weakened against the dollar as investors shifted funds to safer assets after the rating cuts. Moody’s decision highlighted the risk that the European debt crisis will deepen even as the region’s finance ministers prepare to meet on Wednesday to discuss a second aid package for Greece, following the country’s approval of austerity measures.

Still, recent rating reductions have done little to deter investors, who poured money into the government bonds of nations such as France and Austria even after the countries lost their AAA ratings at Standard & Poor’s last month. US Treasuries returned three times as much as AAA corporate bonds since the world’s biggest economy was cut by one rank in August.

“The ratings agencies are kind of behind the curve,” said Shen Jianguang, chief economist for Greater China at Mizuho Securities Asia Ltd, who previously worked for the International Monetary Fund. “The risks have actually been falling in Europe. There may be worries that countries cutting fiscal spending may drag on their economic growth, but the concerns aren’t new and the downgrade should have minimal impact on market sentiment.”

Portuguese, Spanish and Italian bonds declined on Tuesday, increasing the extra yield investors demand to hold the securities over German debt. The German 10-year yield fell two basis points, or 0.02 percentage point, to 1.91 percent at 9.22 a.m. in Frankfurt. The euro slipped 0.2 percent, trading at $1.3156 and the Euro Stoxx 50 Index dropped 0.3 percent.

“The uncertainty over the euro area’s prospects for institutional reform of its fiscal and economic framework,” and the resources that will be made available to deal with the crisis, are among the main drivers of Moody’s action, the ratings company said.

Moody’s on Monday also lowered its outlook on Austria’s AAA rating to negative. Malta’s rating was downgraded to A3 from A2, and Slovakia and Slovenia were both downgraded to A2 from A1. All three were given negative outlooks. Standard & Poor’s on January 13 cut the credit rating of nine euro-region states, leaving Spain at A, Italy at BBB+ and Portugal at BB.

Moody’s said Europe’s “increasingly weak macroeconomic prospects” threaten the “implementation of domestic austerity programs and the structural reforms that are needed to promote competitiveness.” It said market confidence “is likely to remain fragile, with a high potential for further shocks to funding conditions for stressed sovereigns and banks.” [Bloomberg]