S&P cuts Malaysia outlook on political uncertainty

LONDON, May 15 (Reuters) - Standard & Poor's (S&P) cut its outlook on Malaysia's credit rating to "stable" from "positive", citing heightened political uncertainty after recent elections.

The ruling coalition lost its more than two-thirds majority in parliament for the first time in four decades.

"Coming amid a challenging external environment and expectations of a slowdown in growth, prospects for a ratings upgrade have diminished over the short term," S&P said.

The ratings agency affirmed Malaysia's "A-" foreign currency rating, noting that the country's public sector debt was expected to decline further to 7.4 percent of 2008 current account receipts from 11.2 percent in 2006.

"The government's economic policies are generally pragmatic and market friendly," S&P added.

But the ratings agency noted that Malaysia's debt and deficit levels were weaker than its peers, warning that the country's credit rating could be threatened if fiscal policy were loosened to spur growth or if the economy slows sharply. (Reporting by Sebastian Tong; editing by David Stamp)