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Spain awaits Moody's possible downgrade call

Source: Reuters - Tue 28th Sep 2010

Spain could lose its final triple A rating on its debt this week, but markets may only move sharply if Moody's decides to cut it by more than one notch or place a negative outlook on the country.

Moody's put Spain under a three-month review with the threat of cutting its rating by two notches at the end of June. While the government believes the rating agency will leave its AAA rating intact, analysts are not convinced. They say Moody's will move to catch up with cuts to Spain's top rating by peers Standard & Poor's and Fitch last spring.

Moody's heated up the outlook for struggling euro zone periphery countries this week when it downgraded Anglo Irish Bank's debt on Monday.

Analysts said Moody's would take the axe to Spain's final AAA rating, but would be keen to stress the country was not in so much danger as countries such as Portugal and Ireland that are also struggling to slash their huge public deficits.

"I expect Moody's to downgrade Spain by a notch to Aa1 (stable outlook) to bring the country's rating to the same level as Fitch's" said Tullia Bucco, economist at Unicredit.

"Fundamentally, the country's better outlook goes back to the still contained debt to GDP level in relative terms and the good track record in implementing even bold consolidation plans."

Spain's public debt to GDP is forecast to rise to 62.8 percent this year, under half that forecast in Greece this year.

Spain's commitment to slash its public deficit has helped investors' view on the country, even if doubts remain the economy can grow by 1.3 percent next year as the government expects.

On Sept. 17 Economy Minister Elena Salgado said she did not expect Moody's to downgrade Spain.

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