UPDATE 1-Credit Suisse raises XL Capital to outperform

July 8 (Reuters) - Credit Suisse upgraded XL Capital Ltd (XL.N) to "outperform" from "neutral," and said the Bermuda-based reinsurer's capital position was stabilizing and its revenue decline should slow down during the rest of the year.

The brokerage expects improving fixed income markets to lead to a stronger capital position, which could lead to the removal of the negative ratings outlook by rating agencies in six to 12 months.

"We believe it is unlikely that the company will raise capital even if fixed income markets deteriorate significantly," Credit Suisse analysts said in a note.

The analysts expect revenue to decline at a slower rate than in the first quarter, when it fell 30 percent, and the company's earlier forecast of a mid-20 percent drop.

"As the fixed income markets improved, and as the company's stock price recovered, retention ratios improved, which should result in lower-than-expected decline in the top line," Credit Suisse said.

The brokerage, which raised its price target on the stock to $18 from $13, added that XL Capital was "being disciplined" and was not irrationally cutting pricing to keep business.

Shares of the company were trading up 4 percent at $11.41 before the bell. They closed at $11.01 on Tuesday on the New York Stock Exchange. (Reporting by Brenton Cordeiro in Bangalore; Editing by Anne Pallivathuckal)