UPDATE 1-Moody's raises rating on Portugal's government bond

Fri May 9, 2014 5:52pm EDT

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May 9 (Reuters) - Moody's Investors Service raised Portugal's government bond rating on Friday to Ba2 from Ba3 and said a further upgrade could be coming within months.

But even with the signs of a recovery seen in Portugal, a boost to investment grade is not yet on the table.

"When we look at the GDP numbers, the recovery is strengthening and also broadening," said Kathrin Muehlbronner, a sovereign analyst with Moody's. But "there is still quite a lot to do."

The Moody's upgrade came a few hours after Standard & Poor's raised its credit outlook on Portugal to stable from negative.

Portugal has undergone years of austerity and reform measures in the wake of a European debt crisis that shook global markets.

Lisbon was forced to seek a bailout from the European Union and International Monetary Fund in 2011. Earlier this month Portugal said it expects to exit that program soon, without a precautionary credit line.

Portugal's economy started to recover last year, and bond yields have fallen sharply this year.

Moody's cited a brighter fiscal outlook in the upgrade, as well as the upcoming exit from the bailout.

Although Portugal remains on review for possible further upgrade, Muehlbronner said another boost to the rating would probably only be by one notch, keeping the country's sovereign debt within the speculative range.

"For an investment-grade rating you would want to see stronger growth and be confident that this can be sustained," she said. (Reporting By Kanika Sikka in Bangalore and Luciana Lopez in New York; Editing by Leslie Adler)

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