Moody’s cut Spain’s credit rating yesterday and warned it could do so again because of the nation’s banking woes and spendthrift regions, sending the euro tumbling.

It cut the long-term debt rating by a notch to “Aa2”, a serious setback to Spain’s efforts to quell fears it might yet be engulfed in the eurozone credit quagmire that has trapped Greece and Ireland.

Moody’s also put a negative outlook on the rating, meaning it could be downgraded further.

The euro retreated to $1.3817 after the downgrade from $1.3868 a few hours earlier.

Moody’s Investors Service expressed scepticism about Madrid’s assumption it can clean up savings banks’ balance sheets at a cost of less than €20 billion.

“The eventual cost of bank restructuring will exceed the government’s current assumptions, leading to a further increase in the public debt ratio,” it said in a statement.

Spain’s savings banks are still struggling under the weight of loans that turned sour after the 2008 property bubble collapse.

The agency said it also had concerns over Spain’s efforts to create sustainable government finances, given the limits of Madrid’s control over the regional governments’ spending.

Spain’s government has enacted a series of reforms to ease market fears about its high annual deficits and the sluggish economy, encumbered by an unemployment rate of more than 20 percent at the end of 2010.