Bond rating agency Standard & Poor's downgraded nine eurozone countries Friday.
S&P cut France and Austria’s top, triple-A ratings by one notch to AA+.
It left Germany, the Netherlands and Finland's triple-A ratings untouched. Also unchanged were Luxembourg at AAA, Belgium at AA, Estonia at AA- and Ireland at BBB+.
That leaves Germany as the only top-rated backer of Europe’s bailout fund for troubled economies.
• France • Austria • Italy • Spain • Portugal • Cyprus • Malta • Slovenia • Slovakia
• Germany • The Netherlands • Belgium • Luxembourg • Finland • Ireland • Estonia
S&P also cut Italy and Spain by two levels. Italy fell to BBB+ from A and Spain fell from AA- to A. Portugal and Cyprus also dropped two notches. The agency also cut ratings on Malta, Slovakia and Slovenia.
“In our view,” it said on its website, “the policy initiatives taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone.”
The announcements came after North American markets closed, but reports of the pending downgrades during the day helped send shares lower.
France’s finance minister, Francois Baroin, went on television to confirm his country’s downgrade before markets in Canada and the U.S. finished trading for the day, saying the cut was "bad news" but not "a catastrophe."
"You have to be relative, you have keep your cool," he said.
"It's necessary not to frighten the French people about it."
Also weighing on shares was the announcement that crucial negotiations between the Greek government and its private creditors on a deal needed to avoid default had been "paused for reflection," which raised concerns the negotiations were close to collapse.
A downgrade would most likely increase the costs of borrowing.
Negotiations 'paused for reflection'
Earlier, representatives of private bondholders said crucial negotiations between the Greek government and its private creditors on a deal needed to avoid default had been "paused for reflection," which raised concerns the negotiations were close to collapse.
The talks are aimed at renegotiating the face value of bonds Greece has issued in order to reach an agreement on how much of a haircut the banks will take voluntarily.
By making the deal voluntary, Greece would dodge a legal default, which risks triggering a much deeper financial crisis that could curtail European lending.
If Greece's default is disorderly — with the various lenders uncertain of how much they will be repaid — the risk is that banks will become unwilling to lend because they can no longer count on enforcement of the rules that protect lenders when borrowers fail to meet the terms of their loans.
More immediately, the bond swap aims to reduce Greece's debt by €100 billion ($130 billion) and is a key part of a second, €130 billion ($169 billion) international bailout installment.
The S&P/TSX composite index closed down 43.26 points, or 0.4 per cent, at 12,231.06. It fell by as much as 157 points during the session.
The Canadian dollar closed down 0.42 of a cent at 97.78 cents US.
In New York, the Dow Jones industrial average ended down 48.96 points, or 0.4 per cent, at 12,422.06, the Nasdaq composite index fell 14.03, or 0.5 per cent to 2,710.67 and the S&P 500 index ended with a loss of 6.41 points, or 0.5 per cent, at 1,289.09.
The euro fell to a 17-month low, and was trading down 1.2 per cent at $1.2666 US late in the afternoon..
European markets closed lower, with London's FTSE 100 off 0.46 per cent, Frankfurt's DAX down 0.58 per cent and the Paris CAC 40 closing off 0.11 per cent.
Traders had earlier been relieved at successful government bond auctions in Italy and Spain, which had raised hopes that policy-makers may finally be getting a grip on Europe's debt crisis after months of procrastination and indecision.
On Friday, Italy had seen its borrowing costs drop for a second day in a row as it easily raised €3 billion.
"It's really mixed news on Europe today; the downgrade is definitely negative," said Jeff Bradacs, portfolio manager at Manulife Asset Management.
"But borrowing by Italy came in at lower rates than expected and that's partially driven by European banks getting low funding costs through the ECB and buying the Italian bonds."
On Dec. 5, S&P warned it might make the downgrades, citing a growing reluctance of banks to lend, rising bond yields, continuing disagreements among European leaders on how the resolve the region’s debt crisis, high government and household debt and the rising risk of recession.
A weak U.S. trade report added to traders' concerns.
American exports dropped 0.9 per cent in November from the previous month. Fewer shipments of autos and capital goods, such as aircraft and machinery, were the key reason. A decline in exports weakens U.S. growth and exports could drop even further in the months to come.