UPDATE 1-S&P raises outlook on Australia, affirms AAA credit rating

(Rewrites throughout, adds details from S&P statement, context)

SYDNEY, Sept 21 (Reuters) - Global ratings agency S&P raised its outlook on Australia’s AAA sovereign rating on Friday to “stable” from “negative” citing optimism about the government’s ability to return the country’s finances to surplus by the early 2020s.

After almost a decade of deficits, Australia’s centre-right government has said it would turn a small budget surplus in 2019/20.

Australia is one of only 10 nations in the world with a AAA credit rating from the top three agencies.

The deteriorating government finances was one reason S&P had put Australia on a “negative” watch in mid-2016.

Since then, Australia’s A$1.8 trillion has continued to expand and last quarter marked 27 years without a recession, helped by strong resources exports and rapid population growth that fuelled demand for homes and infrastructure.

The country’s labour market has also enjoyed a job surge since early 2017, sending the unemployment rate lower to 5.3 percent from a peak of 6.4 in 2014 percent while the once-booming housing market is slowly cooling amid stricter regulatory lending restrictions.

“We expect steady government revenue growth supported by the strong labor market and relatively robust commodity prices, to be accompanied by expenditure restraint,” S&P said in a media release.

The ratings agency also said it expects a continued “orderly unwind” of property prices with no harmful effects on consumer spending or on the financial system.

Home prices in Australia have eased every single month since late last year, a development that policymakers have widely welcomed.

Reporting by Swati Pandey Editing by Shri Navaratnam