%mlink(STRY:; PHOTO:; AUDIO:%)

PARIS (Dow Jones/AP) _ Moody's Investors Service Inc. Tuesday downgraded the debt of French telecommunications-equipment maker Alcatel SA to junk status.

Moody's reduced Alcatel's senior debt rating from ``Baa2'' to ``Ba1,'' citing an ``expectation of continued declines in telecom equipment demand over the next two years.''

Alcatel responded by vowing to regain an investment-grade rating by continuing to rein in costs. It repeated information it released last week that it has $4 billion in cash, and net debt has been reduced below $2 billion.

Moody's said that while the company was financially well prepared, its ``ample liquidity today is likely to erode over time, if its market continues to decline rapidly.''

In June, Alcatel said it would take a restructuring charge of $1.2 billion _ double a previous estimate _ and cut 10,000 jobs in addition to 30,000 already announced.

The cuts are Alcatel's attempt to bring costs into line with falling spending on telecommunications equipment, as indebted carriers cut back on investment to reduce debt.

American Depositary Shares of Alcatel closed Tuesday at $6.19 on the New York Stock Exchange, down 11 cents.