The Moody's agency cut Ireland's credit rating Monday, citing the country's swelling national debt, the unpredictable cost of its bank-bailout plans and its weak growth prospects for the next three to five years.

Shares on the Irish Stock Exchange slumped after Dietmar Hornung, Moody's lead analyst for Ireland, announced that the New York-based agency was dropping its credit-worthiness rating one notch to Aa2. Moody's previously cut Ireland's rating to Aa1 from the top grade, Aaa, in July 2009 as Ireland plunged into its worst recession since the Great Depression of the 1930s.

Hornung cited what he called "the Irish government's gradual but significant loss of financial strength as reflected by its deteriorating debt affordability."

However, Ireland's National Treasury Management Agency or NTMA — responsible for managing Ireland's ballooning government debts — welcomed Moody's accompanying decision to raise its outlook on the risk of loaning money to Ireland to "stable" from its previous "negative" rating. That suggests it will issue no more downgrades in coming months.

"We'd prefer not to have a downgrade, but there is still a lot of good news in (the Moody's report)," said Oliver Whelan, the NTMA's director of funding and debt management.

On Tuesday, the NTMA plans to auction 1.5 billion euros ($1.95 billion) in 6-year and 10-year government bonds paying annual interest of 4.6 percent and 5.0 percent respectively. It represents Ireland's latest effort to drum up enough money internationally to keep covering a stunning shortfall in tax collections since 2008, when Ireland's banking- and property-dependent economic boom imploded.

However, analysts said the new Irish bonds were likely to be purchased in full. They described Moody's move as overdue, given that the other two major ratings agencies — Standard & Poor's and Fitch — already cut Ireland's credit worthiness to similar or lower levels last year.

Hornung said Moody's believes Ireland possesses particular strengths that will drive a return to growth, particularly Ireland's willingness to bear heavy spending cuts and its ability to attract investment by foreign high-tech companies. Nonetheless, growth would be constrained by grave weakness in both banking and property for the next three to five years.

He said the government's establishment of a "bad bank," the National Asset Management Agency or NAMA, combined with its enforcement of severe tax rises and spending cuts over the past two years suggested that the worst was already over and Ireland has "turned the corner."

Moody's noted that Ireland's debt-to-GDP ratio has surged from 25 percent before the crisis to 64 percent today and is expected to plateau next year in a range of 95 percent to 100 percent, reflecting exceptional bank-bailout costs.

Hornung defended the decision to raise Ireland's outlook to stable because, in Moody's view, the Irish debts could be contained more quickly than currently forecast "with a quick resumption of domestic credit flow and a supportive global economic environment." Conversely, he said, Ireland remains at risk of suffering shocks from a new crisis abroad or discovery of more toxic debts in its banking system.

Ireland is midway through a process of transferring nearly 80 billion euros in defaulting debts from five Irish-owned banks to NAMA. The government also has nationalized the most reckless of those lenders, Anglo Irish Bank, and pumped 3.5 billion euros each into the big two, Allied Irish Banks and Bank of Ireland, in exchange for acquiring minority stakes in both.

Moody's forecast that Ireland's total bank-bailout bill from 2009 to 2011 could top 25 billion euros, with the greatest risk of further cash demands coming from Anglo.

Banks led shares lower Monday on the Irish Stock Exchange. Allied Irish and Bank of Ireland both fell about 2 percent to 0.86 euro and 0.68 euro respectively. Irish Life & Permanent — the only Irish bank not receiving government aid — rose marginally to 1.59 euro.