U.S. budget deal lowers risk of damage to creditworthiness: Fitch

NEW YORK Wed Dec 11, 2013 12:23pm EST

Senate Budget Committee chairman Senator Patty Murray (D-WA) (R) and House Budget Committee chairman Representative Paul Ryan (R-WI) shake hands after a news conference to introduce The Bipartisan Budget Act of 2013 at the U.S. Capitol in Washington, December 10, 2013. REUTERS/Jonathan Ernst

Senate Budget Committee chairman Senator Patty Murray (D-WA) (R) and House Budget Committee chairman Representative Paul Ryan (R-WI) shake hands after a news conference to introduce The Bipartisan Budget Act of 2013 at the U.S. Capitol in Washington, December 10, 2013.

Credit: Reuters/Jonathan Ernst

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NEW YORK (Reuters) - Fitch Ratings said the bipartisan U.S. budget deal hashed out Tuesday still leaves U.S. sovereign credit vulnerable to a downgrade, but reduces the risk of damaging the economy or perceptions of U.S. creditworthiness.

The deal, Fitch said in a statement on Wednesday, also suggests a lower risk of the kind of political brinkmanship that led to a partial government shutdown in October.

"But the proposal does not increase the federal government debt ceiling, which Congress will need to raise again by 7 February to give the Treasury the borrowing capacity it needs to meet its payment obligations and avoid further recourse to extraordinary measures," Fitch said.

Fitch said it still expects to decide whether its so-called Rating Watch Negative outlook - a short-term and often event-driven opinion - on AAA-rated U.S. sovereign debt will result in a downgrade or not by the end of March 2014.

In October, Fitch put the U.S. on Rating Watch Negative specifically because Congress was in danger of not increasing the debt ceiling in a timely manner.

The $85-billion budget deal, while modest in spending cuts, would end three years of impasse and the kind of fiscal instability that led to the partial shutdown and pushed the United States to the brink of default.

The deal, which has yet to be passed and signed into law, would still only reduce the budget deficit $20-23 billion over 10 years, representing 0.1 percent of gross domestic product, Fitch noted.

Standard & Poor's, in an historic move, cut its rating on U.S. government debt to AA+ from AAA in August 2011 because of the political impasses of the past. S&P has a stable outlook on the credit while Moody's Investors Service rates the United States at Aaa with a stable outlook.

(Reporting by Daniel Bases; Editing by Bernadette Baum)

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