Instant view: Portugal downgraded to junk by Moody's

NEW YORK (Reuters) - Moody's Investors Service on Tuesday cut Portugal's credit rating by four levels to Ba2, two notches into junk territory, saying there is great risk the country will need a second round of official financing before it can return to capital markets.

COMMENTS:

LUKE RAHBARI, PARTNER AT STUTLAND VOLATILITY GROUP IN CHICAGO

"For the main part this was expected, though the markets did trade down on it. Everyone expected a downgrade, so this is more symbolic. The amount of debt Portugal has isn't as big as other countries. What people are waiting on is to see how Greece is treated, that'll be the playbook for how this situation plays out for other countries, more or less. In the short-term, everything will be pressured here. Everyone wants to get out of every asset and reassess after we get more clarity."

BRIAN DOLAN, CHIEF CURRENCY STRATEGIST, FOREX.COM, BEDMINSTER, NEW JERSEY:

"This renews the question of whether not just Greece but the other peripherals are likely to need more bailouts. These issues were not extinguished last week. There was a nice dose of water poured on them but they are still smoldering, and this is like adding gasoline to those smoldering ashes. The euro could drop below $1.44, though it may have to wait until after the ECB meeting."

MARKET REACTION: STOCKS: U.S. stock indexes edged lower BONDS: U.S. bond prices were little changed FOREX: The dollar gained against the euro