NEW YORK - July 25, 2011 - Moody's credit rating agency downgraded Greek debt by three notches on Monday and warned that the eurozone rescue was almost certain to trigger another two-notch cut to default status.

Moody's, taking a similar line to the Fitch agency on Friday, said that once old debt had been replaced with new bonds on easier terms under the rescue scheme, it would assess the new instruments and issue a new notation.

A default rating could have unforeseeable domino effects on financial markets, but the ISDA (International Swaps and Derivatives Association) organization, which oversees credit default swap (CDS) default insurance contracts said the rescue terms, would probably not trigger payout clauses.

Averting a default and triggering CDS turmoil was a key obstacle in the rescue talks, but eventually eurozone governments resigned themselves to this possibility.

Moody's Investors Service said that the second rescue announced on Thursday meant that private sector holders of Greek bonds "are now virtually certain to incur credit losses."

This rescue for Greece involves initially - up to 2014 - about 110 billion euros from eurozone governments in various forms and 50 billion euros from banks. But Moody's said the effect would be limited.

The agency, which issued two statements on the rescue, said that it had "downgraded Greece's local- and foreign-currency bond ratings to Ca from Caa1 and has assigned a developing outlook to the ratings".