S&P downgrades euro zone rescue fund BRUSSELS (Reuters) - U.S. rating agency Standard & Poor's cut its credit rating of the euro zone's EFSF rescue fund on Monday, and Greece was under pressure to break a deadlock in debt swap talks if it is to avoid an unruly default. French Finance Minister Francois Baroin said there was no need to shore up the European Financial Stability Facility after S&P downgraded it by one notch to AA+ from triple-A, echoing the view of Germany, the only major euro zone member to retain a top-notch credit rating. S&P said in a statement the decision was all but inevitable following identical cuts three days earlier to the creditworthiness of France and Austria, two of the EFSF's guarantors. A growing number of experts, including a Standard & Poor's official, warned that a Greek default was on the cards, after Greece's talks with creditors broke down on Friday. Greece was under growing pressure to secure a last-ditch agreement with its private creditors to accept voluntary losses on their holdings of Greek bonds. Athens risks going bankrupt when 14.5 billion euros of bond redemptions fall due in late March. Without a private sector bond swap involving a voluntary writedown, a 130 billion euro second international bailout for Greece could fall apart. The talks with creditor banks broke down because of different views on what interest rate is acceptable, the head of the group leading private sector talks said. Charles Dallara, managing director of the Institute of International Financial, said the banks were "very surprised" at the stance taken by some officials representing both governments and multilateral institutions, without naming them. "The downgrade to 'AA+' by only one credit agency will not reduce EFSF's lending capacity of 440 billion euros," said the fund's chief executive, Klaus Regling. French Finance Minister Francois Baroin said there was no need to shore up the EFSF despite the S&P rating downgrade. "The EFSF has kept intact its ability to lend, with enough means and guarantees to fulfill the full range of its present and future commitments," he said in a statement. There is therefore no need to act on the EFSF at the moment. German Chancellor Angela Merkel's spokesman, Steffen Seibert told reporters: "The government has no reason to believe that the volume of guarantees that the EFSF has now should not be sufficient to fulfill its current obligations. We should not forget that it has been decided to significantly move forward the ESM and to have it in place in mid-2012, one year earlier than planned. The euro hovered just above a 17-month trough against the dollar early in Asia on Tuesday, but reaction to the S&P downgrade was muted as it was well expected. Trading overnight was subdued as U.S. markets were shut for the Martin Luther King holiday. The head of Austria's debt office told Reuters the loss of Vienna's AAA status had also been priced into the market already, and Austria was able to sell treasury bills on Monday at rates very close to zero. French President Nicolas Sarkozy brushed off the historic loss of Paris' top credit rating for the first time since 1975, a blow to his campaign for re-election in May, saying France's policy would not be dictated by rating agencies. Contrasting S&P's move with a statement by rival watchdog Moody's, which still has France on an Aaa rating, he said: "My deep belief is that it changes nothing. We must reduce the deficit, we must reduce our spending and we must improve the competitiveness of our economy to return to a path of growth. Italian Prime Minister Mario Monti, whose debt-laden country was downgraded by two notches along with Spain, called last week during a visit to Berlin for the EFSF to be increased to ward off attacks on his country's bonds. But a senior politician in Merkel's conservative CDU party, Michael Meister, said it was the downgraded countries that should increase their guarantees for the fund. Germany was not downgraded so our contribution should not be changed. Countries that were affected must contribute more to the guarantees," Meister told Reuters. Sources familiar with Greece's talks with its private creditors said EU paymaster Germany was pressing for new bonds to be given to banks in the planned swap to carry a low coupon of less than four percent that would increase the banks' effective losses to 75 percent. The IMF was also weighing on the talks by warning that the Greek economy and the euro zone's economic outlook have worsened since the bailout package was agreed in October, raising Athens' funding needs to make its debt sustainable by 2020, they said. But I am confident they will continue and we will reach an agreement that is mutually acceptable in time. Additional reporting by Lefteris Papadimos in Athens, Steve Slater and Richard Hubbard in London, Jan Strupczewski in Brussels and Fiona Ortiz in Madrid; Writing by Paul Taylor; Editing by Tim Pearce