S&P revises US credit outlook to "stable"

By David Gaffen

NEW YORK, June 10 (Reuters) - The Standard & Poor's rating agency on Monday improved its outlook on the U.S. government's rating to "stable" from "negative," citing congressional action that averted the "fiscal cliff" at the end of 2012 and higher tax revenues.

Furthermore, the rating agency, the only one to downgrade the US's AAA rating, stated that it does not expect the debate at the end of 2013 regarding raising the debt ceiling to result in an "unexpected contraction in current spending—which could cause problems—that would impact debt servicing."

S&P estimates that the US government will have to authorize a further increase in the amount of debt it issues near the end of the fiscal year in September.

The chances of a downgrade of the US credit rating are "less than one in three" as improvements in tax revenues and economic performance are helping to reduce the country's debt level.

The dollar appreciated against the euro and the yen, and stock markets opened with slight positive variation. Against the real, the currency extended its gains and was trading with an increase of more than 1 percent at noon.

S&P said in a statement that recent improvements in tax collection and measures taken to address long-term budgetary issues have improved the outlook for the United States.

However, the agency raised concerns about the authorities' ability to handle issues that have dragged on over time due to deepening partisan divisions in Washington over the past decade.

"We believe that our current 'AA+' rating already takes into account a reduced capacity of elected officials in the United States to react quickly and effectively to long-term public financial pressures, compared to officials in some countries with higher ratings, and we expect repeated debates about raising the debt ceiling," the agency said in a statement.

S&P said it expects the debt-to-GDP ratio to stabilize around 84 percent in the coming years, which will allow "authorities additional time to adopt measures aimed at dealing with spending pressures created by the aging population."

"The strength of the stock market has created tax revenues, which are certainly positive, and the economy continues on a trajectory of low but steady growth. So, despite continuing to print money, the debt numbers have stabilized, and I think S&P is reflecting that," said Tim Ghriskey, vice president of investment at Solaris Group.

In August 2011, S&P became the first credit rating agency to downgrade the United States' sovereign rating from "AAA" to "AA+", the second-highest rating, and had left the credit outlook at "negative" at that time.

"Few people really notice the government's debt rating. The change makes sense since the deficit trajectory has improved. Of course, S&P shouldn't have downgraded the rating. If a credit rating is supposed to assess the probability of default, it doesn't make sense to give the US government any rating other than AAA," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management.

Rival agencies Moody's and Fitch currently rate the U.S. as triple-A, but both have a "negative" outlook for the rating.

Fitch confirmed the AAA rating in January, reversing its threat to downgrade the U.S. rating. This came after Congress reached an agreement to avoid the "fiscal cliff," which could have resulted in tax increases and spending cuts worth $600 billion, threatening the fragile U.S. economy.

Moody's has maintained that it is monitoring whether there will be an improvement in the US debt-to-GDP ratio, pointing to a downward trajectory in the overall level of debt.

(Reporting by Dan Burns)