Brazil to get investment grade in 2008-analysts

By Walter Brandimarte

NEW YORK, May 17 (Reuters) - Brazil may become an investment-grade country as early as next year, Wall Street banks forecast on Thursday, after Standard & Poor's upgraded the country's credit ratings to "BB+" and maintained a positive outlook on its debt.

The S&P decision on Wednesday surprised analysts and boosted Brazil's financial markets because, although many Brazilian assets already trade at investment-grade levels, few investors were expecting ratings agencies to officially admit the country into the club before 2009.

"Before yesterday's move, we expected Brazil to be upgraded to investment grade by S&P between year-end 2008 and the start of 2009," Credit Suisse's analysts wrote in a research note.

"However, maintenance of the positive outlook by S&P and the faster-than-expected improvement in the fundamentals of the Brazilian economy lead us to raise the probability of Brazil receiving investment grade in the first quarter of 2008," they added.

Debt is considered investment grade at ratings of "BBB-" or higher, meaning Brazil's sovereign rating is just one notch below that key level.

JP Morgan also moved its expectation of another Brazil upgrade to early 2008 from 2009. In a research note, the bank's analyst Fabio Akira Hashizume said he was even more surprised that S&P upgraded Brazil's local-currency debt ratings by two notches to an investment-grade "BBB."

"We have been making the case that Brazil's external debt already deserves an investment-grade rating but were of the view that S&P would be much more cautious in upgrading the still high-level and short-duration domestic debt," he wrote.

The S&P decision came less than one week after Fitch Ratings gave the country a similar rating. But, unlike Fitch, S&P maintained a positive outlook on Brazil's ratings.