TOKYO (AFP) -- Standard & Poor's on Friday cut its credit rating on Sharp Corp. to junk status, following huge losses at the struggling Japanese consumer electronics giant.

The global ratings agency said it downgraded Sharp two notches to “BB+” and warned that the Osaka-based firm was beset by weak cash flow and “deteriorating” market conditions.

“Sharp’s liquidity position has weakened, and the company is highly dependent on short-term borrowings in light of weak internal cash flow and a less favorable funding environment,” S&P said in a statement.

Sharp shares plummeted nearly 13 percent to 198 yen on Friday on uncertainty about the future of a deal that would see Taiwan's Hon Hai Precision invest about $800 million in the Japanese firm.

Also Friday, Dow Jones Newswires reported that Sharp, which makes a range of consumer products including Aquos brand electronics, had yet to start mass producing screens for Apple’s next iPhone.

S&P said it expected Sharp's fortunes to improve in the second half of the fiscal year to March 2013, but warned that its current rating was based on sealing the deal with Hon Hai, which makes Apple gadgets in China.

“The ratings also incorporate assumptions that major creditor banks continue to provide Sharp with stable financing and the company does not face serious concerns in refinancing its debt,” it added.

Sharp said it lost about $1.76 billion in the April-June quarter while warning of a bigger-than-expected full-year loss. The company has announced a huge overhaul that could see it cut about 15 percent of its global workforce.

Sharp, which has seen its mainstay television, liquid crystal display and solar panel products struggle, said the job reductions were part of a bid to cut annual fixed costs by 100 billion yen ($1.27 billion) to shore up its dented balance sheet.