* S&P cuts SoftBank rating two notches to BB+, had warned of move in March
* SoftBank shares fall nearly 5 pct after downgrade, analysts cite profit-taking
* S&P says outlook stable, cites growth in Japan business, cost benefits of merger
TOKYO, July 8 Standard & Poor's cut SoftBank Corp's debt rating two notches to "junk" grade, citing financial risks from its $21.6 billion purchase of U.S. wireless carrier Sprint Nextel Corp and Sprint's proposed buyout of Clearwire Corp.
The downgrade spurred a slide in SoftBank's shares, but analysts said the drop was largely due to profit-taking after the stock had surged in anticipation of the Sprint deal, which received final regulatory approval on Friday.
S&P had warned in March it would cut SoftBank's rating to BB+, its highest non-investment grade, if the Sprint deal was concluded.
The downgrade is unlikely to increase financing costs for SoftBank, which should be able to rely on funding from Japanese banks, said Hiroshi Yamashina, senior telecoms analyst at BNP Paribas in Tokyo.
SoftBank in May said it would issue 400 billion yen ($3.96 billion) in retail bonds in the Japanese market, while in April it raised the size of a dual-tranche bond issue in dollars and euros to the equivalent of $3.3 billion from $2 billion.
S&P said SoftBank's outlook was stable, as the ratings agency expects steady growth in its Japanese mobile business and gradual improvement in Sprint's operating performance as the merger brings cost reductions and other benefits.
Moody's Investors Service on June 12 said SoftBank's offer for Sprint would have a limited impact on its rating - now at the agency's lowest investment grade rating of Baa3. The rating has been put on review for a possible downgrade.
SoftBank shares tumbled after news of the downgrade, trading nearly 5 percent lower on the day at 5,600 yen, their lowest this month. They pared losses to end at 5,680 yen, down 3.4 percent.
SoftBank's five-year CDS was quoted around 210 basis points on Monday after the downgrade, a widening of about 20 bps from Friday.