UPDATE 4-Fitch elevates Peru rating to investment grade

(Recasts, adds comment from leading banker, pictures)

By Terry Wade

LIMA, April 2 (Reuters) - Fitch Ratings lifted Peru to investment grade on Wednesday, becoming the first major credit agency to award the coveted status to a country that investors once shunned for defaulting on its debts.

Surging growth and sound fiscal policies allowed Peru to reach investment grade before neighboring Brazil and Colombia, while moving closer to higher-rated Latin American credits like Mexico and Chile.

The upgrade comes after President Alan Garcia, a former leftist whose first term in the 1980s ended in economic chaos, signed a free-trade pact with the United States in December.

Finance Minister Luis Carranza said Peru is now "on the road to first world" standing after Fitch raised its foreign currency sovereign credit rating for the country to "BBB-" from "BB+" with a stable outlook.

Top executives said it showed the developing nation could withstand shocks and turmoil hitting the global economy.

"This is a sign that the country is protected from any important macroeconomic movement," said Walter Bayly, chief executive of Banco de Credito (CRE.LM), Peru's largest bank.

The Andean country's government and companies will likely enjoy easier access to less expensive loans and attract more investment, especially if other large rating agencies raise their credit ratings for Peru.

"This is a result of excellent economic performance in Peru in recent years and good debt management," said Pablo Nano, an economist at Scotiabank in Lima. "This raises the prospect of longer-term financing for companies and the government at better interest rates."

Standard & Poor's rates Peru at "BB+", one notch below investment grade, while Moody's Investors Service rates Peru two notches below at "Ba2".

FAST ECONOMIC GROWTH

Peru's economy grew 9 percent last year, one of the world's fastest paces of expansion, and it has been growing for more than six years. Initially driven by mining exports, last year surging domestic demand led growth.

Most analysts had expected Fitch to upgrade Peru in late 2008, but the agency may have decided to act sooner than planned after Carranza set the fiscal surplus target for this year at 2 percent of gross domestic product to fight inflation and carried out a buyback of Brady bond debt.

"Carranza has had a very proactive stance," said Jorge Sanchez, an analyst at the Maximixe consultancy in Lima.

Fitch said Peru's improved financial ratios counterbalance key credit weaknesses including a concentrated export base as well as political and social risks. The central bank's international reserves have risen past a record $33 billion.

"Peru's public finance and external account performance once again exceeded expectations," Fitch sovereign ratings analyst Theresa Paiz Fredel said.

"The public sector became a net external creditor in 2007, sooner than initially anticipated," Fitch said.

Peru's long-dated global bond due 2037 PERGLB37=RR rose 0.437 point in price to bid 103.75. More investment-grade ratings for Peru would allow a wider pool of investment funds to buy Peruvian securities.

"What we'll initially see is the share prices of banks and financial companies start to rise," said Hernando Pastor, an analyst at the Juan Magot brokerage in Lima. (Reporting by Daniel Bases in New York, Terry Wade, Jean Luis Arce and Ricardo Serra in Lima; Editing by James Dalgleish and Braden Reddall)