International rating agency Fitch has downgraded Portugals sovereign ratings to AA- from AA over concerns about its high levels of debt, the BBC reported today.

"A sizeable fiscal shock against a backdrop of relative macroeconomic and structural weaknesses has reduced Portugal's creditworthiness," Douglas Renwick of Fitch's said.

Earlier this month, Portugal passed an austerity budget aimed at cutting its budget deficit.

Although the agency said Portugal's austerity budget was ''credible'', it said the government would need ''to implement sizeable consolidation measures from next year'', as well as reverse stimulus measures this year, in order to get its debt levels under control.

The downgrade could mean Portugal has to pay higher yields on government bonds to attract investors, making it more expensive for the country to borrow money.

There have been widespread concerns about the high levels of debt of a number of European countries, most notably Greece.

At the end of last year, Fitch and Standard & Poor's, downgraded Greek government debt.

Early this month, the prime minister of Greece George Papandreou met with US President Barack Obama and discussed ways of resolving his country's economic crisis (See: US will stand by Greece to resolve crisis: Obama).

The downgrade heightened concerns about the health of some of Europe's heavily indebted economies, forcing the euro lower against the dollar and the pound.

The euro fell by 1.34 cents, or 1 per cent, against the dollar, to $1.3362.

The downgrade also sent major European stock markets into negative territory.