The rating cut, which follows a similar move by Fitch Ratings earlier this week, sent spreads on Nokia bonds to their widest ever against mid-swaps, a bond market benchmark, and pushed the price of insuring Nokia debt against default to its highest-ever level, indicating a growing level of investor concerns about the company's prospects.

Its shares were down 0.9 percent at 2.732 euros by 1447 GMT, not far from a 15-year low of 2.60 euros set earlier this month.

S&P said its downgrade reflected its concerns that the decline in sales at Nokia's phone business this year could be similar to the 18 percent fall in 2011.

It cut its rating to BB+ from BBB-, at which point Nokia debt is rated as too risky to be bought by many pension funds and other mainstream investors, and said the company's credit rating outlook remained negative.

Nokia, once the world's dominant mobile phone provider, has lost out to Apple Inc and Google Inc in the smartphone business and Chief Executive Stephen Elop is pinning hopes of a turnaround on Lumia, a new range of smartphones which use Microsoft software.

But sales of the new range have so far been slow and are yet to compensate for diving sales of legacy products.

RAPID DECLINE

"We still expect revenue from Lumia smartphones to grow over time, but not sufficiently to offset a rapid decline in revenue from Symbian-based smartphones over the next few quarters," S&P analysts said in a note.

Nokia said it had 4.9 billion euros ($6.5 billion) in net cash reserves and was trying to turn around the business.

"The main focus of these actions is on lowering the company's costs, improving cash flow and maintaining a strong financial position, while bringing attractive new products to market," finance director Timo Ihamuotila said in a statement.

Five-year credit default swaps (CDS) on Nokia debt rose 50 basis points to an all-time high of 645 basis points, according to Markit.

This means it costs $645,000 annually to buy $10 million of protection against a Nokia default using a five-year CDS contract.

Nokia has issued two eurobonds worth in total 1.75 billion euros and two dollar bonds worth a combined $1.5 billion.

Nokia's 5.5 pct April 2014 euro note's asset swap spread widened 65 basis points to its highest ever at 495.6 basis point, while the spread on the 6.75 pct April 2019 note was 48 basis points wider at 682 basis points, according to Tradeweb.

(Editing by Dan Lalor and David Holmes)

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