* Greece now rated junk by all three major rating agencies
* Fitch says Greece economy vulnerable, outlook negative
* Greece says decision shows must reform rating agencies
(Adds Greek official, analyst, background)
By Ingrid Melander and Lefteris Papadimas
ATHENS, Jan 14 (Reuters) - Fitch became the third rating agency to cut Greek debt to junk on Friday, highlighting persisting doubts over the country’s ability to pull itself out of a severe debt crisis that has shaken the euro zone.
The agency cut Greece’s rating by one notch to BB+ from BBB- and said further cuts could come if the economy did not show sufficient signs of recovery. Greek debt is now rated junk by all three major rating agencies.
The move was announced as euro zone countries struggled to agree on measures to prevent debt jitters from spreading to other peripheral countries in the single currency bloc. [ID@nLDE70D120]
“The downgrade acknowledges that while Greece’s economic and fiscal performance under the EU-IMF programme has in many respects exceeded expectations, its heavy public debt burden renders fiscal solvency highly vulnerable to adverse shocks,” Fitch said in a statement.
“Despite the significant progress made in reducing the budget deficit in 2010 ... the fiscal consolidation effort will still have to be sustained over several years to firmly anchor confidence in Greek sovereign creditworthiness,” it said.
The Greek finance ministry said the downgrade showed the need to revise how rating agencies operate in Europe. A wave of downgrades or warnings on Ireland, Spain and Portugal at the end of the year put pressure on European periphery debt.
A ministry official said the government had made efforts to stop Fitch from cutting Greece even more.
“Fitch initially planned to downgrade Greece by three notches but following our objections and a teleconference we had with Fitch, they decided to downgrade by one notch,” the official, who requested anonymity, told Reuters.
Analysts said the move was expected and unlikely to greatly affect markets.
“This was something the market expected but not so soon. If you want to look at the glass half full, it was positive that they downgraded by one notch and not more,” said Takis Zamanis, head trader at Beta Securities.
Fitch acknowledged Greece had made progress under an IMF/EU 110 billion euro bailout deal but said persistent tax evasion put pressure on state revenues and cited concerns about public debt sustainability.
It said debt would peak at close to 160 percent of GDP and new access to market financing remained uncertain. Borrowing costs remain prohibitively high but Greece has said it wants to return to bond markets this year, conditions permitting. (Writing by Dina Kyriakidou)