The downgrade of Taiwan's double A local-currency rating from stable to negative was the first such cut Fitch has made since it began assigning ratings to the country in late 2001.

Like other export-oriented Asian economies, Taiwan has been battered by the sudden slump in consumer demand in the US and Europe. The island saw economic growth fall into negative territory in last year's third quarter after reaching 4.56 per cent in the previous three months.

In response, Ma Ying-jeou, president, said his government would turn to the domestic economy to drive growth. He unveiled a number of stimulus packages, including the distribution of $2.5bn (€1.8bn, ￡1.7bn) in spending vouchers and earmarking $18bn in funds for loan guarantees for businesses. The economic ministry is also considering a bail-out for ailing memory-chip makers.