Moody's placed Portugal's sovereign debt rating on review for a possible downgrade of one and at most two notches, the rating agency said Wednesday in a statement.

Portugal's government bonds are rated Aa2 by Moody's.

"The review for possible downgrade will consider a repositioning of  Portugal's ratings to reflect the potentially lasting deterioration in the government's debt metrics," Anthony Thomas, vice president and senior analyst in Moody's Sovereign Risk Group, said in the statement.

The euro extended losses against the dollar, hitting a 13-month low after the news, while Portuguese stocks fell.

"Portugal's growth problem is related more to its low productivity than its high costs per se," Thomas said. "The lack of a devaluation option creates stronger — but not impossible — headwinds for the country's economic recovery."

CDSs at Record Highs

The cost of insuring Portguese government debt against default rose to a record high, and Bund futures hit their highest since early March 2009 after Moody's announcement.

Greek and Portuguese Credit Default Swaps rose to record highs on Wednesday, according to CDS monitor CMA DataVision.

An official at CMA said the current CDS level meant that the implied default rate for Portugal was 29.6 percent.

Bund futures rose 87 ticks to a session high 126.38, matching levels last seen in early March 2009.

The pan-European FTSEurofirst 300 index of top shares was down 0.8 percent at 1,025.14 points. Portugal's PSI 20 index fell 1.9 percent.

Portugal sold 500 million euros ($666 million) in six-month Treasury bills on Wednesday, but paid four times more than in the previous equivalent auction as investors priced in concern about possible contagion from Greece's debt crisis.

The yield of 2.955 percent was the highest on Portuguese six-month paper since November 2008 and compared with 0.739 percent at the previous sale on March 3.