UPDATE 1-Italy sovereign rating so far unaffected by election-S&P

Tue Feb 26, 2013 4:00pm EST

NEW YORK Feb 26 (Reuters) - Ratings agency Standard & Poor's said on Tuesday that Italy's recent election would not immediately affect the country's sovereign rating but could in the future, leaving the euro zone's third biggest economy at investment grade for now.

Italy's political parties are still looking for a way forward after the weekend election gave no party a parliamentary majority, posing the threat of prolonged uncertainty stoking the European financial crisis.

"We believe the policy choices of the next government, once it is mandated by Italian President Giorgio Napolitano, will be a key factor for Italy's sovereign creditworthiness," S&P said in a statement.

The election results have brought back uncomfortable memories of 2011 and 2012, when Italian borrowing costs came close to being unsustainable and the euro zone teetered on the brink of collapse.

But S&P said that it still believes Italy will continue with fiscal consolidation, although worries remain that a new government might not be seen as having a strong enough mandate to push through other structural reforms to boost the economy.

The agency rates Italy BBB-plus. Fitch rates the country A-minus, and Moody's Investors Service rates Italy Baa2. All those ratings carry negative outlooks.

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