Moody's cut the bank's senior debt rating from junk bond "ba1" to "ba3" and its subordinated debt from "b3" to default grade "caa1."

The move relected "the extreme level of stress placed on LTCB's commercial banking operations, continued deterioration of its bank's asset and liability profiles and the diminishing possibility of a recapitalisation and subsequent merger with Sumitomo Trust and Banking Co Ltd.," the agency said.

The outlook on the bank's deposit ratings was cut from stable to negative. LTCB virtually folded in June after its share price collapsed on the Tokyo stock market.

Lawmakers agreed yesterday, as part of a deal on bills to fix Japan's banking crisis, to nationalise LTCB and sell off its bad loans before a private buyer is found.

With the hope of an injection of public money cut off oneof the bank's affiliates, Japan Leasing Corp, folded on Sunday in Japan's biggest post-war corporate failure. The firm left liabilities worth 2,180 billion yen ($16.1 billion).

Meanwhile, Standard and Poor's has warned it may cut ratings for 22 top Japanese firms, including the giants Toyota Motor Corp. and NTT Corp, blaming worsening health of the world's second largest economy.

"Pressures building in the Japanese economy and in the nation's financial system pose a growing, broad-based threat to the credit quality of Japan's industrial sector," the agency said in a statement.

Standard and Poor's put the 22 firms on credit-watch with negative implications.

Those affected include world's number three car maker, Toyota Motor Corp and world's top telecom firm Nippon Telegraph and Telephone (NTT), both rated gilt-edged "AAA".

Also under review is the world's top consumer electronics maker Matsushita Electric Industrial Co. Ltd, rated "AA", and Japan Airlines Co. Ltd., rated "BB PLUS".

Others includedleading edge electronics firms and Japan's huge trading houses, which boast the largest revenues of any firms in the world.

"Of particular concern is how firms can maintain their competitiveness and adequate financial profiles to cope with the risks of deflation, contracting demand and a financial system under strain," the New York-based ratings agency said. "Even strong and well managed companies could be vulnerable if their key customers, suppliers or lending banks become embroiled in problems."