* Fitch raises outlook on Italy's BBB+ rating to stable
* Fitch upgrades Spain to BBB+
* S&P raises Cypriot rating to B from B-
* S&P confirms France's at AA with stable outlook
(Adds Spain upgrade)
By Valentina Za and Dominique Vidalon
MILAN/PARIS, April 25 Ratings agencies gave a
broadly upbeat assessment of the euro zone's creditworthiness on
Friday, contrasting sharply with the reviews of recent years and
reflecting growing confidence in the region's fiscal and
On a day of credit updates scheduled for three of the
region's top four economies, Standard & Poor's affirmed its
ratings on France and Fitch raised its outlook on Italy and
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. The upgrade was its
second 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.
Italy's benchmark 10-year bond yielded 3.12 percent on the
secondary market on Friday, not far from a record low of 3.07
percent hit last week.
Fitch improved by one notch Spain's sovereign credit rating
to BBB+, three steps above junk.
Fitch also boosted its outlook on Italy to stable, with the
sovereign rating affirmed at BBB+. That followed an upgrade
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, along 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
In a separate statement about the euro zone as a whole,
Fitch said improving public finances were "major achievements,"
although still-high debt levels in the region and its weak
medium-term growth outlook warranted caution.
A wave of euro zone credit downgrades during the financial
crisis led policymakers and economists to blame the 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 have eased, in
part because of domestic reform efforts but also because of 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
France on Wednesday signed off on a fiscal package that
includes 50 billion euros in spending cuts between 2015 and
2017, as it raised its official deficit forecasts for this year
and the next.
In upgrading Spain, Fitch cited improved financing
conditions, a more certain economic outlook and the diminished
risk from Spain's banks, which have gone through a massive
clean-up and recapitalisation.
Standard and Poor's Spain rating stands at BBB-, just above
junk. Moody's raised Spain to two notches above junk in
Fitch mentioned a number of risks still hanging over Spain,
including a still-large public deficit and climbing public debt
pile, weak medium-term growth prospects and exceptionally high
joblessness. One of four members of the Spain's labour force is
In Italy, Fitch cited improved funding conditions and an end
to the country's worst post-war recession among reasons to raise
the outlook. It also mentioned recapitalisation efforts at
Italian banks, which are planning to raise about 10 billion
euros from investors and are less likely now to need 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
"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," said Alberto Gallo, the
head of European macro-credit research at Royal Bank of
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 and Fiona Ortiz in Madrid,
Editing by Alessandra Galloni, John Stonestreet and Alison
Williams, and Larry King)