DUBAI, United Arab Emirates (AP) — Standard & Poor's cut the Bahrain government's credit ratings Monday because of concerns that political unrest could roil the small island kingdom for some time to come.
Stock markets across the Middle East took a further hit too, reflecting investors' wariness as anti-government uprisings continue to flare up from Libya to the Persian Gulf.
Credit rating agency S&P said it was lowering the Bahrain government's long and short-term sovereign ratings by one notch to A-/A-2 because of what it called a reappraisal of political risks in the island nation. The firm expects demonstrations calling for political reforms to persist despite last week's crackdown by state security forces.
Also downgraded to similar levels were the country's central bank and its sovereign wealth fund, Mumtalakat, which owns the money-losing national carrier Gulf Air.
Bahrain has tried hard to position itself as an attractive investment destination despite being eclipsed by Dubai as the Middle East's financial heart. Even the passport stamps issued to incoming visitors declare the kingdom as "Business-friendly Bahrain."
Its relatively liberal lifestyle and active nightlife scene also make it a popular destination for visitors from neighboring Saudi Arabia. Formula 1's season-opening Bahrain Grand Prix — scheduled for March 13 but now in doubt because of the unrest — is also a major tourist draw.
S&P said the outlook for Bahrain's ratings is negative, suggesting further downgrades are possible. It plans to reassess its ratings within the next three months.
"During this time, we expect the course of political events will become clearer, as well as their impact on Bahrain as an offshore financial center and a tourist destination, two important pillars for the economy," S&P credit analyst Mike Noone said.
The cost of insuring Bahrain's debt rose further Monday. Financial data provider CMA said the country's five-year credit default swaps pushed past 300 basis points, their highest level since the crisis began.
Tensions remain high in Bahrain after security forces opened fire on protesters trying to reclaim the landmark Pearl Square last week. At least eight people were killed and hundreds injured in the clashes. Bahrain's rulers have offered talks with opposition groups to try to defuse the showdown, but negotiations have yet to begin.
Stocks across much of the Middle East extended their losses Monday, even as world oil prices surged amid concerns that violent protests in OPEC member Libya could disrupt supplies.
Shares on the Dubai Financial Market were among the hardest hit, falling 1.3 percent to close at 1,516 points.
Saudi Arabia's main index slipped 0.6 percent to 6,299 points, while Bahrain's index lost 0.4 percent to finish at 1,466 points.
Egypt's stock market has remained closed for more than three weeks.
Copyright 2011 The Associated Press.