Moody's Investor Services downgraded its rating on Greece's sovereign debt and warned that further downgrades could be in the offing.

The credit ratings agency's move to reduce its rating on Greece to A3 from A2 came after the European Union's statistical authority cast fresh doubt on the accuracy of Greece's financial reports and said the country's 2009 budget deficit–already yawning–was wider than previously thought.

The news sent Greek bonds into a tailspin, with the yield on a Greek 10-year bond nearing 8.7%, and all but dashed any remaining hopes that Greece might borrow afresh from international markets.

The euro also dropped on the news to $1.3257, its lowest level since May 2009.