UPDATE 1-Fitch upgrades Mexico credit rating to "BBB+"

(Updates with details, market reaction)

NEW YORK, Sept 19 (Reuters) - Fitch Ratings raised Mexico's long-term foreign currency credit rating on Wednesday, citing the passage of fiscal reforms by lawmakers last week.

Fitch raised the rating to "BBB+" from "BBB," three notches above investment grade. It gave the rating a stable outlook.

The upgrade was underpinned by Mexico's resilience in the "current unfavorable external environment," as well as prudent public debt liability management, Fitch said.

"The tax reform that could increase the non-oil tax revenues by 2 percent of GDP (gross domestic product) during President (Felipe) Calderon's term is a step in the right direction to address one of Mexico's key credit weaknesses related to its narrow tax base," Fitch sovereign strategist Shelly Shetty said in a statement.

Standard & Poor's rates Mexico "BBB," one notch below Moody's Investors Service's "Baa1" rating and Fitch's rating.

Mexico's peso currency firmed to 10.9800 to the U.S. dollar following Fitch's announcement, up 0.67 percent on the day. Mexican stocks also edged higher, but the benchmark IPC stock index lost much of its rating-induced gains .MXX.

The Mexican Congress on Friday approved a landmark tax reform package in a major legislative victory for Calderon.

Mexico has one of the smallest tax collection rates in Latin America, taking in about one-third of what Brazil's tax authorities collect relative to GDP.

The cornerstone of the reform is a new minimum income tax for companies of 16.5 percent in 2008, which will rise to 17.5 percent by 2010.

Additionally, state oil monopoly Pemex will keep more of its revenues from crude oil sales to reinvest in exploration and technology.

"The relatively swift approval of these reforms bolster confidence in the Calderon administration's ability to form a working coalition in Congress to pass its legislative agenda, and raises hope of further progress on structural reforms," Shetty said.

However, Fitch, said Mexico's closeness to the U.S. economy through trade and financial links leaves it exposed to a slowdown in the American economy.

"Mexico's creditworthiness could strengthen if the country's economic performance improved on a sustained basis, leading to a convergence of its per capita income with that of higher-rated sovereigns," the statement said.