WRAPUP 1-Moody's may downgrade Greece, Portugal on negative

* Moody's puts Greece on review, a week after Fitch cut

* Portugal outlk to negative over structural probs, debt

* Spreads widen to early-September high for Greece

By Ingrid Melander and Andrei Khalip

ATHENS/LISBON, Oct 29 (Reuters) - Moody's cut its outlook for euro zone member Portugal's debt ratings on Thursday and put Greece on review for a possible cut, driving up the premium the two Mediterranean countries pay to borrow money.

Moody's cited sharp fiscal worsening in Greece, where the budget deficit is set to surge to 12.5 percent of GDP. Fellow agency Fitch cut the country's ratings last week and analysts expect Moody's will follow suit after the review. [ID:nLT259401]

The agency also cut its outlook on Portugal's Aa2 ratings to negative from stable, pointing to rising debt and a lack of structural reforms [ID:LT387819].

"For me, this is all part and parcel of a scenario of deficit pressure which is putting all sovereign ratings under pressure, especially for the higher deficit and higher debt issuers," said Padhraic Garvey, strategist at ING.

Ratings guide how much it costs governments to issue bonds and other debt and are a reflection of the risks facing the country's finances and broader economy.

Several euro zone states have already seen their ratings cut, which over time will add to pressure on governments to rein in the huge deficits and debt burdens built up to stimulate economies after the financial crisis erupted last year.

The 10-year Greek bond GR10YT=RR yielded as much as 145.5 basis points over equivalent-maturity Bunds EU10YT=RR compared with 136 basis points in late European hours the previous trading day, according to Reuters charts. That was the widest since early September.

The equivalent Portuguese spread edged out by two basis points to 57 basis points.

SKY-ROCKETING GREEK DEFICIT

Analysts said Moody's decision to put Greece under review came as no surprise after the new socialist government said last week the budget deficit would reach 12.5 percent of GDP this year, more than double than the previous, conservative government had predicted.