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MADRID, May 23 (Reuters) - Standard & Poor's raised Spain's sovereign debt rating on Friday by one notch to BBB with a stable outlook, the third agency to do so in recent months in response to the country's improving economic fortunes.
S&P cited Spain's better economic prospects and raised its forecasts for annual growth in 2014-2016 to an average of 1.6 percent from 1.2 percent, reflecting the effects of labour and other structural reforms.
Spain, which exited a five-year economic slump in the second half of 2013, is hoping to grow 1.2 percent this year and 1.8 percent in 2015.
But it also has to deal with one of the highest unemployment rates and budget deficits in the European Union while its banks, which needed a 42-billion-euro financial aid package in 2012, are still only issuing loans restrictively.
"The outlook is stable, reflecting our current view that risks to the ratings on Spain will remain balanced over the next two years," the agency said in a statement.
Spain, like other struggling euro zone countries, has benefited in recent months from a renewed appetite for its debt from international investors as fears of a break-up of the euro single currency eased and reforms started to pay off.
Credit agency counterpart Fitch on Friday upgraded its rating on Greece to B and gave it a stable outlook, citing the government's improving record on fiscal issues.
The agency had raised Spain's sovereign credit rating by one notch to BBB+, three steps above junk, on April 25 while Moody's raised Spain to two notches above junk in February. (Reporting by Ian Chua and Julien Toyer; Editing by John Stonestreet)