UPDATE 2-Moody's raises Nasdaq, may cut NYSE Euronext

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NEW YORK, Nov 11 (Reuters) - Moody's Investors Service on Wednesday raised its rating on Nasdaq OMX to investment grade and said it may downgrade NYSE Euronext, the latest sign of changing fortunes as exchanges battle for market share.

Nasdaq (NDAQ.O) has been successful in diversifying revenues, integrating mergers and boosting profits, while NYSE Euronext's (NYX.N) merger savings have been offset by market share losses and new technology spending, Moody's said in separate reports.

Moody's raised its rating on Nasdaq, parent company of the Nasdaq Stock Market, to Baa3, the lowest investment grade, from Ba1, the highest junk rating.

The rating of NYSE Euronext, the trans-Atlantic exchange operator that runs the New York Stock Exchange, is still four notches higher than Nasdaq's at A2, but Moody's said it is on review for downgrade.

The pace of deleveraging at NYSE Euronext in the fourth quarter of 2009 and through 2010 is expected to be closer to Moody's more pessimistic estimates, the rating agency said.

"Management is currently directing cash flow towards capex, acquisitions and dividends as opposed to debt repayment," Moody's senior vice president Peter Nerby said in a report.

Shares of NYSE Euronext have gained ground on traditional rival Nasdaq OMX this year as the company absorbed a handful of acquisitions and prepared to launch two high-profile data centers next year.

However, NYSE Euronext's leverage has stayed high for an A2-rated firm, Moody's said. Its spending and continued pressure on cash trading transaction revenues are resulting in negligible free cash flow generation year to date, the agency said.

Nasdaq OMX has rebounded from five quarters of U.S. market share declines, helped by fee changes and other items. For details click on [ID:nN04461668].

Nasdaq has reduced debt by $435 million so far in 2009 and management is expected to maintain a more credit-friendly financial policy than in the past, Moody's said in a statement.

"Nasdaq OMX has demonstrated discipline when realizing merger cost synergies and investing in its platform while generating free cash flow to pay down debt," Nerby said.

NYSE Euronext's shares were up 27 cents or 1 percent to $27.24 on the New York Stock Exchange while Nasdaq's were up 1.4 percent or 26 cents to $18.65. (Reporting by Dena Aubin; Editing by Leslie Adler)