RPT-UPDATE 1-Fannie, Freddie no longer on downgrade review-S&P

(Fixes spelling in headline, story number) (Adds statement on Freddie Mac, rewrites throughout)

NEW YORK, May 19 (Reuters) - Standard & Poor's said on Monday it is no longer reviewing Fannie Mae (FNM.N) and Freddie Mac's (FRE.N) debt and preferred stock ratings for downgrade, citing government support for their securities.

The rating agency, however, cut Fannie Mae's risk-to-the-government rating one notch to "A-plus," the fifth-highest investment grade, from "AA-minus," citing weak earnings and pressured capital ratios at the government-sponsored enterprise.

The risk-to-the-government rating reflects Fannie Mae's independent credit quality, without considering its government support.

"Fannie Mae is facing the most challenging housing and mortgage cycle in more than three decades, and at a time when its core earnings are weakened both from higher credit-related expenses and significant spread widening on both agency and non-agency mortgage-backed securities," S&P said in a statement.

S&P earlier this month said it may cut Fannie Mae and Freddie Mac's ratings after Fannie Mae on May 6 posted a $2.51 billion loss, its third consecutive loss, due to the protracted U.S. housing slump.

Freddie Mac on May 14 reported a smaller-then-expected loss of $151 million.

On Monday S&P affirmed the top "AAA" senior debt rating of both GSEs with a stable outlook, citing strong explicit and implicit support for their debt as a GSE security.

The ratings subordinated debt and preferred stock ratings at both GSEs were affirmed at "AA-minus," the fourth highest investment grade, with a negative outlook. A negative outlook indicates a downgrade is more likely over the next one to two years.

Freddie Mac's risk-to-the-government rating was affirmed at "AA-minus," also with a negative outlook. (Reporting by Karen Brettell; )