Rating agencies under new pressure in Italy

Italian state auditors are investigating whether downgrades of Italy by the three major rating agencies last year hurt the debt-laden country's finances by making it accelerate austerity measures that have deepened its recession.

European policymakers, struggling to shore up state finances, have accused analysts of being too quick to cut euro zone sovereign ratings despite bailouts and their spending cuts and tax increases. The rating agencies already face a separate criminal probe in a southern Italian town.

"It is not right for agencies to speak so irreverently about Italian sovereign debt, causing economic consequences that everybody can see," Angelo De Dominicis, who heads the prosecutors' office of the Rome state audit court, told Reuters on Friday.

The prosecutor said a string of downgrades had prompted Rome to push through tough measures to try to restore investor confidence, with big tax hikes pushing the economy deeper into recession.

Standard & Poor's and Fitch rejected the allegations. Moody's was not available for comment. Downgrades by the agencies forced up Italy's borrowing costs.

"Our analysts have operated with the highest standards of professionalism and integrity," Fitch's head of communications, Daniel Noonan, said in an emailed statement. "We believe the Corte dei Conti will reach a similar conclusion."

De Dominicis said he hoped to sum up the investigation by the end of the year. He would then decide whether to ask a court to rule in the case, which could lead to requests for damages against the agencies.

The top credit rating agencies have come under fire around the world for not predicting the subprime mortgage debt crisis of 2007-2008.

The European Union has moved to rein in the big agencies, although this week it watered down some proposals for doing so under pressure from businesses. The European Central Bank is also discussing a plan to scrap credit rating rules on euro zone sovereign bonds, central bank sources say.

Nowhere have the rating agencies faced greater criticism than Italy, where frustration grew further last month after a mass downgrade of banks.

That prompted a criminal investigation which is now winding up in the southern Italian town of Trani. Prosecutors there accuse the agencies of publishing incorrect reports and of at least one leak during market hours, wrick knocked shares.

S&P has said none of its controlling shareholders had access to data or reports before the downgrade was made public.

Moody's has said it takes the dissemination of market-sensitive information very seriously and is cooperating with authorities. Fitch has not commented on the case.