Moody's Investors Service has slashed its credit rating on Portugal, bailed out earlier this year, by four notches to Ba2 from Baa1, warning they could be lowered further.

Moody's said the downgrade reflects "the growing risk that Portugal will require a second round of official financing before it can return to the private market (to raise financing)."

The action was also based on increased "concerns that Portugal will not be able to fully achieve the deficit reduction and debt stabilisation targets set out in its loan agreement with the European Union and International Monetary Fund due to the formidable challenges the country is facing in reducing spending, increasing tax compliance, achieving economic growth and supporting the banking system."