Hossam Ali, Associated Press
An Egyptian woman chants slogans during a protest demanding the military step down in Cairo, Egypt, Wednesday, Dec. 21, 2011. Thousands of women marched through central Cairo demanding Egypt's ruling military step down in an unprecedented show of outrage over soldiers who dragged women by the hair and stomped on them, and stripped one half-naked in the street during a fierce crackdown on activists the past week.

CAIRO, Egypt — Egypt's benchmark stock index dropped more than 1.4 percent early Thursday as a deepening political crisis in the Arab world's most populous nation cast a pall over its political future and prompted Moody's Investors Service to push the government's bond rating deeper into junk status.

The Egyptian Exchange's EGX 30 index was down 1.48 percent by 11:50 a.m., rebounding slightly from a more than 1.6 percent slide earlier in the day. The index is down about 48 percent so far this year as investors fled the market amid the unrest stemming from the protests that toppled former President Hosni Mubarak in mid-February and have continued on a near daily basis since then.

The decline came even as the country's military-appointed prime minister called for national dialogue to end the clashes and protests that have crippled the country's economy and cast a pall on its transition to democracy.

The festering unrest prompted Moody's to cut Egypt's government bond rating to B2 from B1, with the agency on Wednesday citing, among its reasons for the downgrade, what it described as the "continued unsettled political conditions" that have led to the installation of the country's fourth transitional government since the start of the Jan. 25 uprising.

Moody's said that the "repeated changes in government leadership have resulted in ineffective and unpredictable economic policies."

It also cited the deterioration in the country's external payments position since the uprising, with net international reserves dropping about 44 percent since the end of December to $20.2 billion by the end of November. A portion of that has gone to propping up the Egyptian pound, which has seen its value fall relative to the dollar.

The near-daily protests since Mubarak handed over power to the military in mid-February have crippled the economy. Tourism and foreign direct investment — two of the country's foreign currency mainstays — have been decimated while manufacturing and productivity have been hard hit by the demonstrations.

The pound was trading at about 6.0295 on Thursday, according to forex Web site XE.com, but analysts worry that the depletion in foreign exchange reserves could lead to an even sharper depreciation that, in turn, would bring about a spike in the inflation rate.

In addition, while tens of billions of dollars have been pledged by foreign donors and institutions, Prime Minister Kamal El-Ganzouri said Thursday that only $1 billion had been delivered so far. Rounding off the country's litany of fiscal woes is that it has been wary of turning to the International Monetary Fund for a $3 billion loan.

"Moody's believes that the Central Bank of Egypt will find it increasingly difficult to maintain adequate international liquidity in the months or year ahead, raising the risk of a balance-of-payments crisis," the agency said in a statement.

Much of the current political turmoil stems from a standoff between the military and protesters who are demanding that the ruling generals step down and hand over power to civilian rule.

Recent violent clashes that left at least 14 dead have tapered off, but tensions remain high in the country especially as the fundamentalist Muslim Brotherhood appears to have strengthened its winnings after the second round of staggered parliamentary elections. The harder-line Salfist groups have come in second, raising fears that the next legislature will be dominated by Islamists.

El-Ganzouri called for a national dialogue and pleaded for a two-month period of calm to allow the country to restore security and some semblance of economic stability. He also said the ruling generals were eager to relinquish power, but did not elaborate.