(Adds comments from Asia)
* Moody's, Fitch keep US triple-A rating for now
* Moody's slaps negative outlook, Fitch doesn't rule it out
* S&P decision awaited: Will it downgrade US?
By Walter Brandimarte and Daniel Bases
NEW YORK, Aug 3 The United States had its
triple-A rating confirmed by two key ratings agencies on Tuesday
after Washington struck a last-minute deal to avoid a debt
default, but threats of future downgrades remain.
Moody's Investors Service and Fitch Ratings maintained U.S.
ratings for now, but said additional deficit-reduction measures
are needed for the government to put its finances in order and
retain the coveted rating.
Underscoring that threat, Moody's assigned a negative
outlook to the Aaa rating, which means a downgrade is possible
in the next 12 to 18 months. For details, see .
Fitch promised to conclude a more thorough review of the
United States by the end of the month and did not rule out
slapping a negative outlook on the rating.
Now investors await Standard & Poor's. The agency has been
tougher than its rivals, threatening to downgrade U.S. ratings
by mid-October if lawmakers did not come up with a plan to
meaningfully cut the budget deficit.
The actual plan approved in Washington called for budget
savings of $2.1 trillion in the next 10 years, nearly half the
amount S&P has said would be enough to support the AAA rating.
"If they stick to what they said, they would downgrade (the
United States). But I suspect they are under tremendous pressure
not to do so," said Mohamed El-Erian, co-chief investment
officer at PIMCO.
On Wednesday, S&P's director of Asian sovereign ratings
Takahira Ogawa told Reuters in Singapore that global markets
have "to some extent already discounted" the potential risk of a
U.S. downgrade. Ogawa, who was not commenting on S&P's U.S.
rating, said that most Asian sovereign ratings were on the
Also in Singapore, a senior executive of BlackRock Inc
, the world's largest money manager with $3.6 trillion in
assets, said he sees far less probability of a downgrade of U.S.
Scott Thiel, BlackRock's deputy chief investment officer for
fixed income, fundamental portfolios and head of its European
and non-U.S. fixed income group, said the weakening of the U.S.
economy is a bigger issue than raising of the debt ceiling.
"Obviously the probability of being downgraded is obviously
a lot less now than it was before, having said that it is still
not zero," Thiel said.
Lingering anxiety about a possible U.S. downgrade
contributed to the poor performance of U.S. stocks on Tuesday,
adding to worries about the economy. The S&P 500 turned
negative for the year after closing in the red for a seventh
day. In Tokyo, the Nikkei average fell more than 2
Both Moody's and Fitch have expressed heightened concern
about the performance of the U.S. economy, which is crucial for
the efforts of stabilizing the country's debt ratios.
The U.S. economy stumbled badly in the first half of 2011,
coming close to contraction in the first quarter. It expanded
just 0.4 percent in the first quarter, a sharp downward
revision from the previously reported 1.9 percent gain, and rose
1.3 percent in the second quarter.
"The downward revisions of the GDP were bigger than we
expected and a source of concern," David Riley, Fitch's top
analyst for the United States, told Reuters in an interview.
For Moody's, that economic performance may be just an
adjustment period, or may be a sign that the financial crisis
permanently damaged the growth potential of the United States.
"We would expect that growth would accelerate in 2012 from
the first half of the year," Steven Hess, Moody's top analyst
for the United States, said.
"But if it doesn't, that means that the whole process of
fiscal consolidation and the plans to achieve lower deficits and
lower debt ratios will be made all the more difficult."
Another issue that will be closely monitored by Moody's is
the evolution of U.S. borrowing costs in the next few years.
The agency would see it as normal if yields paid on U.S.
10-year Treasury notes rise from the currently
"abnormal level" of around 2.6 percent to near 4 percent by 2012
and almost 5 percent by 2016, Hess said, referring to the
economic assumptions of the Congressional Budget Office.
The main difference between Standard & Poor's and its rivals
is that S&P has said a meaningful deficit reduction deal, if not
agreed now, would be even more difficult in 2012, when
presidential elections are likely to increase political
divisions in Washington.
Moody's and Fitch seem to be more flexible with that time
horizon and willing to give the lawmakers the benefit of the
The plan just approved in Washington includes initial
savings of $917 billion and another $1.5 billion by the end of
the year, based on recommendations of a bipartisan joint House
and Senate committee. Automatic across-the-board spending cuts
would kick in if this mechanism fails.
However, Moody's stressed the new framework is "untested."
"Attempts at fiscal rules in the past have not always stood
the test of time," the ratings agency said in a statement.
"Therefore, should the new mechanism put in place by the Budget
Control Act prove ineffective, this could affect the rating
(Additional reporting by Raju Gopalakrishnan, Kevin Lim, Saeed
Azhar and Harry Suhartono in Singapore; Editing by Richard