LISBON (Bloomberg) — Portugal's credit grade was cut by Fitch Ratings for the first time, underscoring growing concern that Europe's weakest economies will struggle to meet their debt commitments as finances deteriorate.

The rating was lowered one step to AA- with a "negative" outlook, Fitch said in a statement yesterday, adding that further economic or fiscal underperformance this year or in 2011 may lead to another downgrade. The euro extended its decline, dropping against all but one of the 16 most-traded currencies. Portuguese stocks and bonds fell.

"A sizeable fiscal shock against a backdrop of relative macroeconomic and structural weaknesses has reduced Portugal's creditworthiness," Douglas Renwick, associate director at Fitch, wrote in the statement from London. "Although Portugal has not been disproportionately affected by the global downturn, prospects for economic recovery are weaker than 15 European Union peers, which will put pressure on its public finances over the medium term."

Euro-region governments including Greece, Ireland, Italy and Spain are seeking to narrow growing budget deficits. Portugal's deficit is 9.3 percent of gross domestic product, more than triple the European Union's three percent limit. Failure by the European Union to agree on a mechanism to help countries shore up their finances has hurt the euro, putting it on course for its worst quarter against the dollar since 2008.

The currency weakened 1.2 percent to $1.3343 as of 12:27 p.m. in London, bringing its slide this quarter to 6.8 percent.

Portuguese bonds fell, with the yield on the 10-year note rising three basis points to 4.33 percent. The nation's PSI-20 Index of stocks dropped 1.9 percent.

Portugal's GDP is "significantly below" what is typical for an AA country, Fitch said. "Evidence that Portugal is entering a sustained recovery and that budgetary targets are being met, along with further structural reforms to enhance the productivity and competitiveness of the economy, would ease downward pressure on the rating," the company said.