Standard & Poor's says mistakenly announced French downgrade

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Ratings agency Standard and Poor's said Thursday that it had mistakenly announced to some clients a downgrade of France's top 'AAA' credit rating, amid speculation of just such a move.

"As a result of a technical error, a message was automatically disseminated today to some subscribers of S&P's Global Credit Portal suggesting that France's credit rating had been changed," S&P said in a statement.

"This is not the case: the ratings on Republic of France remain 'AAA/A-1+' with a stable outlook and this incident is not related to any ratings surveillance activity. We are investigating the cause of the error."

French Finance Minister Francois Barion called on the European Securities and Markets Authority and France's Financial Markets Authority to launch probes into the mishap.

France AMF later said it had opened an investigation.

The agency's embarrassing error came as the spread between France's 10-year government bond rates and Germany's hit new record highs, in a sign of markets' failing confidence in non-German eurozone debt.

President Nicolas Sarkozy's government has launched an austerity programme and insists its finances are under control, vowing to balance its budget by 2016 despite the economic slowdown and trouble in eurozone neighbour Italy.

But another ratings agency, Moody's, warned France last month its "financial strength has weakened" and that it was "among the weakest of its AAA peers".

It said it would decide within three months whether the stable outlook on France's rating was still merited, kicking off speculation that Paris was on its way to losing the top rating.

Many commentators warned Thursday that the bond spread with Germany and rising French borrowing costs show that the markets already regard French debt as riskier than its perfect rating implies.

The spread between benchmark 10-year French and German government bonds hit 170.2 basis points - 1.702 percentage points - at around 1645 GMT, even bigger than the record of 164 basis points earlier in the day.

Around 1700 GMT the interest rate or yield on a 10-year French OAT bond stood at 3.456 percent, up sharply from 3.189 percent on Wednesday, while that of its German equivalent the Bund was also up at 1.776 percent from 1.719 percent.

"It's always the same fears, about France's triple A rating, the fragility of banks," said Cyril Regnat, a bond analyst at Natixis bank.

Baroin earlier insisted that France would meet its deficit reduction targets after the European Commission urged Paris to step up its austerity drive.

Baroin and Budget Minister Valerie Pecresse issued a statement stating that they remain on course to reduce France's public deficit to three percent of GDP by 2013 and to balance the budget by 2016.

French Prime Minister Francois Fillon on Monday announced 65 billion euros ($89 billion) in cuts and tax rises designed to clean up France's books and preserve its precious "AAA" credit rating, amid worries about eurozone sovereign debt.

But on Thursday the European Commissioner for economic affairs, Olli Rehn, warned France that France must do still in order to meet its previous promises to its eurozone partners.

Baroin and Pecresse insisted that efforts remain on course, even if France's annual GDP growth drops, as feared, to less that one percent this year, and underlined what they said was "the government's total determination".

They noted that France had six billion euros on reserve in its 2012 budget to compensate for any growth shortfall, and promised to renew this measure in case output remains stagnant through 2013.