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MILAN, Dec 27 (Reuters) - Fiat shares fell to their lowest level in nearly two decades on Friday after Moody's cut the loss-making carmaker and industrial group's debt ratings to "junk" status.
At 0944 GMT, Fiat stock was trading at 7.80 euros, a fall of 3.7 percent from the close on Monday and performing worse than a fall of roughly one percent for the DJ Stoxx index of European auto stocks .
Fiat shares earlier touched a low of 7.64 euros, their lowest level in roughly 20 years.
"I think it's a bit of an emotional response," said a senior trader with a Milan brokerage. "Fiat's bonds don't seem to be too badly hit as the downgrade had already been discounted."
Fiat's 6.75 percent euro bond due 2011 was around 80 percent of face value bid, 82 offered at 0935 GMT, largely unchanged from before the rating downgrade.
The bonds were bid as low as 75 percent of face value in November, as investors anticipated a cut to "junk" grade.
The Milan trader said volumes in Fiat and the rest of the market were low due to the Christmas holidays.
Fiat stock has plunged 56 percent this year as the group struggles against widening losses caused by a slump in sales at its car unit Fiat Auto and against high debts.
After Italian markets closed on Monday for a three-day Christmas break, Moody's Investors Service cut Fiat's senior unsecured debt ratings one notch to "Ba1", its highest junk grade, a move that would make it more expensive for the group to issue debt.
It also cut Fiat's short-term debt ratings to "Not Prime" from "Prime-3" and said its outlook was "negative", meaning another cut was more likely than an upgrade.
Fiat, whose brands include Alfa Romeo and Lancia, is laying off thousands of workers and expects its auto unit to post a 1.2 billion euro ($1.23 billion) operating loss this year.
In an attempt to stave off junk status, the group recently pushed on with asset sales, including a six percent stake in U.S. partner General Motors Corp which it passed to its investment bank adviser Goldman Sachs for $1.2 billion.
But Moody's said Fiat was unlikely to merit an investment-grade rating even if it disposed of its remaining 80 percent stake in Fiat Auto by early 2004.
GM already owns 20 percent of Fiat Auto.
(Additional reporting by Catherine Evans in London)