Moody's Investors Service put Greece's sovereign foreign currency credit rating on review for possible downgrade on Thursday, citing uncertainty over the country's ability to cut debt to sustainable levels.

The decision was made even as the rating firm acknowledged Greece has made significant progress in implementing a large fiscal consolidation effort.

A multi-notch downgrade could be possible if Moody's concludes there is an increased risk the ratio of debt to gross domestic product will fail to stabilize in three to five years or that support from the European Union turns out to be less strong after 2013.

Therefore, Moody's review will focus on the factors, namely nominal growth and fiscal consolidation, that will drive the country's debt dynamics over the next few years, the firm said in a statement.

Moody's currently rates Greece at Ba1, the highest junk status rating and equal to Standard & Poor's BB-plus rating. Fitch Ratings remains at investment grade status of BBB-minus.

Greece's 10-year debt yield fell nearly 3 basis points on Thursday to bid 12.118 percent as the price rose 0.112 point to 67.743 according to Thomson Reuters Tradeweb.

Greece has launched a series of fiscal austerity measures as part of a 110-billion-euro ($150-billion) EU/International Monetary Fund bailout agreement signed in May.

Greek protesters clashed with police and set fire to cars and a hotel in central Athens on Wednesday while tens of thousands marched against the reforms and spending cuts aimed at pulling the country out of its debt crisis.

The government is clearly very determined to push the adjustment process forward but it is facing significant political and administrative headwinds, said Sarah Carlson, sovereign credit analyst at Moody's in London.

Implementation risk is particularly high in 2011, and during the review Moody's will be looking at how those risks are being addressed, the statement said.

The decision to begin the review was also predicated upon increased uncertainty over debt levels given they were recently revised substantially higher; a large revenue shortfall in 2010; and concerns over the level of ongoing support it might receive if its market access remains cut off.

EU and IMF support remain strong as long as Greece follows through with its austerity measures, but Moody's felt there is also a risk to this view as well.

The authorities' willingness and ability to provide Greece with additional assistance is not assured and particularly depends on program implementation, Moody's said.

Moreover the precise nature and conditions of support that will be forthcoming after 2013, and the implications that this will have for bondholders, is unclear, the statement said.

A new mechanism for debt agreements would include collective action clauses (CAC) from 2013, under EU proposals.

CAC's allow a majority of bond holders to override objections from minority holders in seeking an agreement on a debt restructuring.

(Reporting by Daniel Bases and Caryn Trokie; Editing by James Dalgleish)

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