Greece was downgraded close to default on Monday, sending yields on its 10-year bonds near to fresh euro-era highs and stoking fears over the eurozone debt crisis.

Standard & Poor's cut Greece's long-term sovereign credit rating by three notches to triple C, a sign the rating agency thinks it will be forced to downgrade Athens to default -- or D -- as private creditors are likely to be involved in the country's next bail-out.

Greece is now the lowest-rated sovereign in the world, below Ecuador, Jamaica, Pakistan and Grenada. The agency said: "In our view, Greece is increasingly likely to restructure its debt in a manner that, under the conditions of any package of additional funding provided by Greece's official creditors, would result in one or more defaults under our criteria."

Greek 10-year bond yields jumped to more than 17 per cent for the second time this year, before closing at 16.97 per cent in response to the S&P move, which puts Athens only four notches above default.

Portuguese and Irish 10-year bond yields closed at euro-era highs of 10.66 per cent and 11.34 per cent respectively.

The S&P move comes as more problems emerged over the second rescue package for Greece. The deal, worth €172bn according to EU officials, is being held up by a dispute, chiefly between Germany and the European Central Bank, about whether to restructure Greek debt, which the ECB strongly opposes. Eurozone finance ministers will try to bridge the divide between Berlin and the ECB at a meeting in Brussels on Tuesday, although no breakthrough is expected. Senior officials believe the German government is more likely to give ground than the ECB.

The Greeks hit back at Standard & Poor's move, saying the decision overlooked intense deliberations at the European Union and International Monetary Fund to find a viable solution to its debt crisis.

"The (S&P) decision also overlooks the government's moves to avoid any problems relating to Greece's contractual obligations as well as the will of all Greeks to plan our future inside the eurozone," the finance ministry said in a statement.

In spite of the downgrade, S&P said the recovery rate for investors holding Greek bonds would remain in the 30 per cent to 50 per cent range.

A restructuring of Greece's debt -- either with a bond swap or by extending maturities on existing bonds -- looks increasingly likely to be imposed by European policymakers as a means of sharing the burden of Greece's crisis with the private sector, S&P said.

"In our view, any such transactions would likely be on terms less favourable than the debt being refinanced, which we, in turn, would view as a de facto default according to Standard & Poor's published criteria," the agency said.

Fitch has also signalled that it is likely to downgrade Greece to default in any outcome that involves private creditors.