(For more on Europe’s debt crisis, click on TOP CRIS.)

June 7 (Bloomberg) -- Fitch Ratings cut Spain’s long-term credit rating to BBB and left it two notches from junk, citing the cost of recapitalizing the country’s banking industry and a lengthening recession.

Spain, previously rated A, may need as much as 100 billion euros ($126 billion) to bolster its banking system, compared with an earlier estimate of about 30 billion euros, Fitch said in a statement today. The Spanish economy is set to remain in recession through 2013, the ratings company added, having previously forecast a recovery for next year.

“The much reduced financing flexibility of the Spanish government is constraining its ability to intervene decisively in the restructuring of the banking sector and has increased the likelihood of external financial support,” Fitch said in the statement. “Spain’s high level of foreign indebtedness has rendered it especially vulnerable to contagion from the ongoing crisis in Greece.”

The government managed to auction 10-year debt today amid speculation that European authorities will act to boost growth in the single currency area and ease the pressure on peripheral nations. Budget Minister Cristobal Montoro said June 5 that Spain was shut out of capital markets.

--Editors: Craig Stirling, Eddie Buckle

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net