* Fitch raises outlook on Italy’s ‘BBB+’ rating to ‘stable’
* Fitch expected to hike outlook or upgrade Spain
* S&P raises Cyprus’ rating to ‘B’ from ‘B-’
* S&P confirms France’s at ‘AA’ with stable outlook (Combines stories on Italian and French ratings, adds comments)
By Valentina Za and Dominique Vidalon
MILAN/PARIS, April 25 (Reuters) - Ratings agencies gave a broadly upbeat assessment of the euro zone’s creditworthiness on Friday, contrasting sharply with reviews of recent years and reflecting growing confidence in the region’s fiscal and economic recovery.
On a day of credit updates scheduled for three of the bloc’s top four economies, Standard & Poor’s affirmed its ratings on France, while Fitch raised its outlook on Italy and was expected to boost its view of Spain after Europe’s markets close.
S&P also raised its rating on Cyprus, suggesting the recovery is spreading to the peripheral regions left most exposed to the euro zone’s financial crisis, in what was its second upgrade of the bailed-out country since it came close to financial collapse last year.
Borrowing costs for the countries worst hit by the crisis have fallen sharply this year as the European Central Bank’s loose monetary policy encourages investors hunting for returns to bet on their recovering economies.
Fitch’s outlook upgrade on Italy to ‘stable’, with the sovereign rating affirmed three notches above junk at ‘BBB+', follows a rise earlier this month of its outlook on bailed-out Portugal to ‘positive’ from ‘negative.’
Italy was a fulcrum of the debt crisis a couple of years ago together with Spain, whose sovereign rating many investors and analysts in Madrid expect Fitch to upgrade or underpin with an improved outlook later on Friday.
S&P confirmed France’s long-term rating at ‘AA’ with a stable outlook.
During a wave of euro zone credit downgrades during the financial crisis, policymakers and economists blamed ratings agencies for exacerbating investor flight from the region - blame the agencies say is misplaced.
Prosecutors in southern Italy have requested that two ratings agencies stand trial for allegedly prompting a sell-off of Italian assets with downgrades between 2010 and 2012. The agencies say the accusations are baseless.
Today, the mood seems to be shifting in Europe.
The euro zone’s recession ended in the second quarter of last year. Market pressures on weaker countries has eased, in part because of domestic reform efforts but also due to an ECB pledge to do whatever it takes to save the euro.
For France, S&P praised efforts by the country’s Socialist government to boost competitiveness by reducing labour costs and corporate taxation.
France on Wednesday signed-off a fiscal package including 50 billion euro in spending cuts between 2015 and 2017, as it raised its official deficit forecasts for this year and the next.
In Italy, Fitch cited improved funding conditions, as well as an end to the country’s worst post-war recession, among reasons to raise the outlook.
The agency also mentioned recapitalisation efforts at Italian banks, which are planning to raise about 10 billion euros in total from investors and are less likely now to require public aid.
However, it warned that with public debt set to peak at 135 percent of national output this year and stay above 130 percent until 2017, Italy had limited ability to react to potential shocks.
“Generally, and for Italy in particular, the upwards ‘re-rating’ process is very slow and reflects the fact that risks remain that cannot be ignored,” Alberto Gallo, head of European macro credit research at Royal Bank of Scotland, said.
Fitch last cut Italy’s rating to ‘BBB+’ in March 2013, following inconclusive elections that led to a two-month political stalemate. Fresh political paralysis could hurt the rating, Fitch warned.
Italian Prime Minister Matteo Renzi leads a coalition of former rivals he inherited from his predecessor Enrico Letta, whom he ousted in a party coup earlier this year. (Additional reporting by Renee Maltezou in Athens, Giulio Piovaccari in Milan, Julien Toyer in Madrid, Editing by Alessandra Galloni, John Stonestreet)