* Cuts UniCredit, Intesa ratings to BBB+ from A-
* Reduces outlooks on Monte Paschi, Banco Popolare
* Concern on asset quality deterioration, earnings outlook (Releads, adds Intesa, UniCredit)
MILAN, March 18 Ratings agency Fitch on Monday cut its ratings on Italy's biggest lenders Intesa Sanpaolo and UniCredit following its recent downgrade of the country's sovereign debt.
The move was part of rating actions taken by the agency on several Italian banks.
On March 8 Fitch cut its rating on Italy by one notch to BBB-plus due to political uncertainty after February's election left parties deadlocked over how to form a government, a deep recession and rising debt.
On Monday the agency said its expectations were that the domestic recession was deeper than previously thought and likely to put the creditworthiness of Italian banks under further pressure because of concerns about asset quality deterioration and weak earnings prospects.
Fitch cut the ratings of UniCredit and Intesa Sanpaolo to BBB-plus from A-minus with a negative outlook.
A prolonged and painful recession in Italy has driven up bad loans at banks, forcing them to set aside more cash to cover losses.
On Friday UniCredit, Italy's largest bank by assets, set aside nearly 10 billion euros to cover bad loans in 2012 and said the country's longest recession in 20 years would continue to hit earnings this year.
Intesa Sanpaolo, Italy's biggest retail bank, posted an 83 million euro fourth-quarter loss earlier in March due to higher loan loss provisions.
At the end of 2012 bad debts at Italian lenders rose to around 125 billion euros.
Fitch said it had confirmed the long-term ratings of Monte dei Paschi di Siena and Banco Popolare at BBB and revised their outlooks to Negative from Stable.
(Reporting by Stephen Jewkes; Editing by Erica Billingham)