UPDATE 1-Moody's downgrades Ukraine bond rating with negative outlook

Fri Apr 4, 2014 5:59pm EDT

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April 4 (Reuters) - Moody's Investors Service downgraded Ukraine's government bond rating to Caa3 from Caa2 with negative outlook, citing an escalating political crisis and stressed external liquidity position after Russia withdrew financial support.

The escalation of economic sanctions by Russia, with increases in gas price and potential trade restrictions, would further hurt Ukraine's economic outlook, Moody's said. (link.reuters.com/nyh38v)

Ukraine on Friday said it was in emergency talks with European Union neighbors on the possibility of importing natural gas from the West, following a leap in the price it pays for Russian supplies.

"Ukraine's short-term external liquidity pressures have been exacerbated by the suspension of Russia's support package," Moody's said.

The urgency of securing affordable supplies has grown since Moscow - which annexed Crimea from Ukraine last month - raised its discounted gas tariff for Kiev twice this week, almost doubling it in three days.

Moody's also expects domestic political risk in Ukraine to remain high given upcoming presidential elections in May. (Reporting By Thyagaraju Adinarayan; Editing by Don Sebastian)

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