Yields on Italian and Spanish bonds have risen back toward dangerously high levels.

Although Italy managed to raise $9.49 billion Cdn in an auction of 12-month bonds Monday, the effective yield on its 10-year bonds trading on the markets rose 0.49 of a percentage point to 6.72 per cent, not far from the seven per cent level that is considered unsustainable in the longer term.

Because yields and price move in opposite directions, rising rates show lower demand for bonds as investors become more worried about the potential for default.

Spain's main bond yield rose a quarter point to 5.90 per cent.

The spike in yields came as rating agency Moody's Investors Service Monday fell in line with Standard and Poor’s and warned of potential downgrades of European credit ratings.

Last week, S&P warned it might cut the ratings of 15 eurozone governments.

Monday, Moody’s said its ratings on all European Union nations could fall, repeating its warning that the crisis is in a "critical and volatile stage."

Moody’s said last week's European fiscal pact will not deter it from reconsidering the ratings of the 27 nations.

Euro under 'continued threat'

The euro weakened, trading at under 1.32 US late in the day.

Moody's said that last week's summit of European leaders produced "few new measures" and that Europe's financial crisis remains in a "critical and volatile stage."

The 17 nations that use the shared currency and the region in general remains "prone to further shocks and the cohesion of the euro under continued threat," Moody's said.

As a result, the agency said it would still review the creditworthiness of European countries in the first three months of 2012.

"The hope was that by agreeing to a tighter fiscal pact that the ECB would agree to do something to support government bond markets," said Kate Warne, Canadian markets specialist at Edward Jones in St. Louis.

"So we have begun to solve the longer-term problem but haven't done anything to address the short-term problem."

"I think the worry is still, should the ratings be as strong as they have been so far in a situation where it's going to be more complicated to figure out how policy-making will be made," added Warne.

With files from The Canadian Press and The Associated Press