Moody's Investors Service on Tuesday slashed Portugal's credit rating into junk territory, saying there is great risk the country will need a second round of official financing before it can return to capital markets.

Heightened concerns that Portugal will not be able to fully achieve the deficit reduction and debt stabilization targets set out in its loan agreement with the European Union and International Monetary Fund weighed on Moody's decision.

There also is an increasing probability that Portugal will not be able to borrow at sustainable rates in the capital markets in the second half of 2013 and for some time thereafter, Moody's said.

Portugal is facing formidable challenges in reducing spending, increasing tax compliance, achieving economic growth and supporting the banking system, the agency said.

Moody's cut Portugal's credit rating by four levels to Ba2. It is the first of the Big Three ratings agencies to put Portugal's credit in junk status. Standard & Poor's and Fitch Ratings both have Portugal at BBB-minus, the bottom of the investment grade range.

(Reporting by Walter Brandimarte and Daniel Bases; Editing by Leslie Adler)

Portugal