Shares in British banks were down on the FTSE 100 in morning trading after Spain's credit rating was downgraded by Moody's.

Spain was downgraded one notch to Aa2 just days after Moody's also hit Greece with another downgrade. Moody's added that Spain can expect more downgrades in the future.

Just over the border from Spain, Portugal held a successful sale of two year bonds, although the cost was the highest since the Iberian nation joined the euro. The news raised fears that Portugal may be next on the European Union's bailout list.

By 10:20 shares in Lloyds Banking Group were down 1.32 per cent to 60.58 pence per share, RBS shares dropped 1.39 per cent to 43.40 pence per share, Barclays shares declined 1.65 per cent to 300.45 pence per share and HSBC shares fell 0.28 per cent to 664.30 pence per share.

Overall the FTSE 100 was down 0.62 per cent to 5,900.65.