Greece yesterday received a milder-than-feared sovereign credit downgrade by Moody's, the third by a rating agency on the debt-hit eurozone country as it struggles to restore its market credibility.

Moody's downgraded Greece's government bond ratings to A2 from A1, adding that its outlook for the recession-mired Greek economy was negative given its "chronically weak fiscal institutions".

The latest credit rating cut came as Greek lawmakers debate the 2010 budget, which the Socialist government says aims to reduce the growing public deficit and ease concerns over the country's solvency. A vote is expected today.

But the ratings blow was not as harsh as recent downgrades by the two other main international agencies, Fitch and Standard & Poor's, and keeps Greek bonds in safe territory with regard to the European Central Bank's minimum lending requirements.

"Today's announcement by Moody's downgrading Greek government bonds by one notch keeps the rating of the Hellenic Republic in the A category, two notches above the ratings of the other two agencies which recently downgraded Greek government bonds," the Greek finance ministry said in a statement.

Analysts noted the palpable sense of relief in Athens where the stock exchange main index enjoyed 2.9 per cent gains in midday trading.

The mild downgrade also eased pressure on Greek government bonds, with the yield on the 10-year note - the interest on a debt - dropping to 5.734 per cent in morning trading, compared to 5.940 per cent on Monday. Governments borrow money to cover their deficits by issuing bonds.

"This is one of the very few cases when a credit rating cut can be considered as good news," Ioannis Sokos, a London-based strategist with BNP Paribas, said.

"The market was concerned that we might see a two or three notes downgrade instead of one and also the accompanying statement was very 'gentle' on Greece," he said.

Moody's said the socialist government's recent vows to take tough action against the deficit, which is expected to grow to 12.7 per cent of gross domestic product this year, had only partly offset Greece's longer-term risks.