UPDATE 1-Moody's cuts Lithuania ratings, 2nd time this year

(Adds details from Moody's statement, background)

NEW YORK, Sept 28 (Reuters) - Moody's Investors Service on Monday cut Lithuania's ratings for the second time this year, saying a deep economic recession will continue to pressure government finances in the medium term.

The ratings agency downgraded Lithuania's foreign- and local-currency ratings to Baa1 from A3. The outlook on the ratings remained negative, which means another downgrade is likely.

Moody's forecast that, with government revenue crippled by a sluggish economic recovery, Lithuania's budget deficit is likely to be in the high single digits as a percentage of gross domestic product in 2009 and 2010, causing the amount of debt to exceed revenue.

"The deterioration in growth prospects for Lithuania and its major European trade partners suggests that a reversal of this trend is unlikely to occur within the medium-term rating horizon," Moody's senior analyst Kenneth Orchard said in a statement.

Lithuania's exports and ability to draw foreign investment will suffer in the next years as the European economy remains subdued, the agency said. Domestic demand is also likely to be limited by falling employment, wage cuts, a weakened banking sector and government budget consolidation.

"Lithuania is unlikely to grow out of its budget problems post-crisis as other countries have done in the past given the absence of external stimulus," said Orchard.

While Lithuania's private banking system has performed better than expected, nonperforming loans are growing rapidly on the back of rising unemployment, weak domestic demand, and falling housing prices, Moody's warned.

The negative outlook, the agency added, reflects uncertainty about when the economy and government finances will stabilize.

"The rating would likely be downgraded again if the economy continues to contract into 2010 and the budget deficit fails to narrow," Orchard said.

Moody's had cut Lithuania's ratings to A3 from A2 in late April. (Reporting by Walter Brandimarte; Editing by Leslie Adler)