Standard & Poor's is downgrading Spain's credit rating two notches to agency's lowest investment-grade level.

S&P says it is lowering its rating on debt issued by Spain from BBB+ to BBB-. It also assigned a negative outlook to the rating, meaning it could be further downgraded.

S&P cited Spain's economic recession, high unemployment and social unrest. It said those factors were limiting the government's policy options.

Spain's economy is shrinking and its banks are struggling under the weight of a collapsed real-estate market.

The European Central Bank has agreed to buy Spanish government bonds to help lower borrowing costs. But the government first needs to apply for a bailout.