Moody's Investors Service on Tuesday downgraded Spain's credit rating by two notches from As2 to A1.

Moody's put Spain's credit outlook at negative, warning more downgrade risks in the future, after Standard & Poor's took a similar move days ago.

The ratings agency said in a statement that Spain's continuing vulnerability to market Stress and event risk, moderate economic growth prospects and difficulties in achieving fiscal targets were the three main drivers for the downgrade, expressing its disappointment of Spain's and the European Union's handling of sovereign debt crisis so far.

"Since placing the ratings under review in late July 2011, no credible resolution of the current sovereign debt crisis has emerged and it will in any event take time for confidence in the area's political cohesion and growth prospects to be fully restored."

"In the meantime, Spain's large sovereign borrowing needs as well as the high external indebtedness of the Spanish banking and corporate sectors render it vulnerable to further funding stress."

Moody's now expects Spain's real GDP growth in 2012 to be 1 percent at best, compared with earlier expectations of 1.8 percent, saying the slow growth would "in turn make the achievement of the ambitious fiscal targets even more challenging for Spain."

Moody's has also cut Italy and Belgium's credit ratings for the similar reason.