LONDON: Greece had its credit rating cut one step to A2 by Moody's Investors Service, sparking a rally in its bonds as concern eased that a steeper downgrade would make its debt ineligible as collateral at the European Central Bank (ECB).

"There is some relief that it's only one notch," said Peter Chatwell, a London-based fixed income strategist at Calyon, Credit Agricole SA's investment banking division.

Moody's "talks quite positively about Greece's liquidity situation".