While it had been well flagged, markets were likely to continue to fluctuate on news as they did last year, said ANZ chief economist Cameron Bagrie.
"Markets just do not do instability."
The economics of the situation were fairly predicable but the politics in Europe tended to make markets very nervous, he said.
But it could have been worse.
"One school of thought is to look at it optimistically and say thankfully France only went down one notch," Bagrie said.
The issues for New Zealand remained around the currency, which had spiked against the euro, the possibility that costs of borrowing in Europe would rise and the risk that a slump in the European economy would flatten the Chinese economy, Bagrie said.
The risk of a flow-on to the Chinese economy was serious for New Zealand as it was our second biggest trading partner, Bagrie said.
Slower China growth would also have a big impact on our No 1 market, Australia. The downgrades were a reminder to the Government that New Zealand needs to be "whiter than white" in the eyes of global investors.
BNZ chief economist Tony Alexander said this was a reminder that the fiscal problems in Europe had not been solved.
"This is Standard & Poor's saying: we don't think they will be solved in the near future," he said.
The biggest short-term risk for New Zealand was that the kiwi might rise further against the euro and the pound, putting further pressure on our exporters, he said.
In Australia, CommSec senior analyst Craig James said the ratings downgrade didn't come as a surprise after S&P cut its rating for the United States in August last year.
"It's hard to see that France would be a triple-A rated country if the United States wasn't," he said.
Wall St will be closed tonight for the Martin Luther King public holiday, meaning there will be little to drive local shares early in the week.
"The market is probably going to get off to a softer start because, really, there is no major driver," James said.
In France, President Nicolas Sarkozy, Prime Minister Francois Fillon and Finance Minister Francois Baroin vowed to press ahead with cost-cutting measures that opponents say will suffocate growth.
The loss of its coveted AAA status wounded France's self-image and market credibility just as it's facing a new recession and a presidential election.
The move may make it more expensive for struggling countries to borrow money, reduce debts and sustain growth.
German chancellor Angela Merkel said the downgrades reinforced Germany's stance that European leaders must redouble their efforts to resolve the debt crisis as governments prepare to sell more debt next week.
"The decision confirms my conviction that we have a long way ahead of us before investor confidence returns," Merkel said after a meeting of her party in the northern German port city of Kiel.
Merkel said that the S&P downgrades would not "torpedo" efforts to provide financing to indebted member states by weakening the latest bailout fund - the European Financial Stability Facility.
The EFSF could provide firepower even if its creditworthiness sinks below AAA status, she said.
"I was never of the opinion that the EFSF necessarily has to be AAA," Merkel said. "AA+ is also not a bad rating," Merkel said, citing a remark made by Baroin.
The downgrades came from "only one of three agencies", Merkel said.
Germany was left with the eurozone's only stable AAA rating. Critics of S&P have questioned its credibility and relevance before, because it failed to foresee the collapse in the US subprime mortgage market, which helped trigger the financial meltdown of 2008.
Cyprus President Dimitris Christofias called the downgrade "unacceptable".
"The latest downgrade is completely unfair and loaded with ulterior motives," he said.
Austria's chancellor criticised S&P's decision to strip his country of its AAA rating and noted that his coalition government was working on an austerity package.
German Foreign Minister Guido Westerwelle called the S&P announcement an "artificially produced" setback that emerged just as leaders' efforts were beginning to bear fruit.
He called for independent European ratings agencies instead of relying solely on the leading, United States-based agencies such as Standard & Poor's.
It's unclear, though, whether a European agency would come to different conclusions or reduce what critics see as a disproportionate influence that ratings agencies have on markets and policymakers.
S&P spokesman Martin Winn dismissed suggestions that the agency's decisions were political and could further hurt indebted countries.
"The track record of our sovereign ratings as indicators of default risk worldwide is very strong," he told AP.
