Italy's credit rating was cut by Standard and Poor's amid concern that weakening economic growth and a "fragile" government mean the nation won't be able to reduce the euro-region's second-largest debt burden.

The rating was lowered to A from A+, with a negative outlook, S&P said in a statement.

S&P said Italy's net general government debt is the highest among A-rated sovereigns, and the agency now expects it to peak later and at a higher level than it previously anticipated.

The decision sent the euro sliding for a third day against the dollar. The euro fell 0.5 percent against the dollar in Asian trade after the S&P announcement but analysts said more losses could be in store.

Italy, the euro zone's third-largest economy, has been dragged to the centre of the debt crisis over the past three months as concern grew about its ability to handle debt equal to 120 per cent of GDP.

S&P's downgrade was a surprise because the market had thought ratings rival Moody's was more likely to downgrade Italy first. Moody's said last week it would take another month to decide on its action.

The agency, which put Italy on review for downgrade in May, said the growth outlook was worsening and there was little sign that prime minister Silvio Berlusconi's fractious centre-right government could respond effectively.

Under mounting pressure to cut its debt, the government pushed a €59.8 billion austerity plan through parliament last week, pledging a balanced budget by 2013.

But there has been little confidence that the much-revised package of tax hikes and spending cuts, agreed only after repeated chopping and changing, will do anything to address Italy's underlying problem of persistently stagnant growth.

"We believe the reduced pace of Italy's economic activity to date will make the government's revised fiscal targets difficult to achieve," S&P said in a statement.