The credit ratings agency cut Portugal's credit grade by one notch to AA-, citing budgetary underperformance in 2009. Fitch warned that if the country doesn't enforce stricter fiscal discipline this year, another downgrade is possible.
"A sizeable fiscal shock against a backdrop of relative macroeconomic and structural weaknesses has reduced Portugal's creditworthiness," said Douglas Renwick, associate director at Fitch.
The news punished the euro, as traders placed bets that a European Union summit later this week won't be able to reach consensus on how or whether to help troubled Greece. The currency hit a 10-month low against the dollar.
Stock markets around the world have struggled in recent months as investors worried whether the trouble in Portugal, Greece, and other Eurozone countries would hamper the global economic recovery.