Credit rating agency Moody's Investor Service has cut struggling Italian car giant Fiat's debt to 'junk' status, citing its weak performance and high debt burden.

The downgrade, which affects about 15 billion euros in outstanding bonds, will make it more difficult and expensive for the struggling firm to raise further funds from lenders.

The company, hit by a steady decline in car sales, has been forced to lay off thousands of workers and sell off assets in an attempt to stave off a financial crisis.

Moody's added that the outlook for Fiat is 'negative,' in a sign that there could be further downgrades ahead.

Fiat said the cut in its debt rating was unjustified, arguing that its financial situation had "significantly improved" in the last two months.

Tough going

The iconic Italian car firm has fallen on hard times in recent years, with its share of the domestic market falling from 60% to just 30% in a decade.

The company's public image has been tarnished by its decision to suspend some 6,000 workers, triggering angry protests.

The firm's woes have come as a shock in Italy, where the company and the family which runs it, the Agnellis, are seen as national institutions.

Last week, the company sold off its 5% stake in General Motors of the US for about $1.2bn (�768m) in order to pay off some of its debts.

Fiat car sales for 2002 are expected to be 10% down on last year.