May 23, 2014 / 7:05 AM / 6 years ago

UPDATE 1-Fitch upgrades Greece by a notch to 'B'; outlook stable

* Fitch says Greece has put worst behind it

* Upgrade comes days ahead of crucial EU vote

* Greek bonds still rated as junk

ATHENS, May 23 (Reuters) - Fitch upgraded its credit rating on Greece to ‘B’ from ‘B-‘ and gave it a stable outlook on Friday, citing the government’s better fiscal track record.

The upgraded rating still classes debt-laden Greece’s bonds as “highly speculative” and is five notches below investment grade.

But Greece’s deficit reduction by 14 percentage points of gross domestic product over the past years, under the harsh terms of its international bailout, mean the country has put the worst behind it, Fitch said.

“A better fiscal track record is being established. Greece’s deficit reduction over the past four years of its two programmes has been remarkable,” the agency said.

“With the most challenging phase of Greece’s adjustment behind it, the rating is becoming less sensitive to policy hold-ups and political crises,” it added.

The positive comments are a likely boost for Prime Minister Antonis Samaras’s government before it faces its first major electoral test in local and European Parliament elections on Sunday since it came to power two years ago.

In line with most other forecasts by international organisations and lenders, Fitch expects the Greek economy to grow for the first time after six years of recession in 2014, expanding by 0.5 percent.

Fitch also lifted the issue ratings on Greece’s senior unsecured foreign and local currency bonds to ‘B’ from ‘B-‘. The Country Ceiling has been raised to ‘BB’ from ‘B+’ and the Short-term foreign currency IDR has been affirmed at ‘B’, it said.

Standard & Poor’s assigns Greece a B-/B rating and Moody’s rates it Caa3, both deep in junk territory to reflect Greece’s high debt level of 175 percent of gross domestic product in 2013.

Athens is set to obtain some form of additional debt relief from its lenders later this year after topping its fiscal targets and achieving a primary budget surplus, before interest payments, in 2013.

In April, Greece returned to the bond markets with the issue of five-year bonds, its first sale since its debt crisis broke out four years ago, when it risked crashing out of the euro. (Reporting by Ian Chua and Harry Papachristou)

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