Rating agencies buy into euro zone recovery story

Fri Apr 25, 2014 12:11pm EDT
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By Valentina Za and Dominique Vidalon

MILAN/PARIS (Reuters) - Ratings agencies gave a broadly upbeat assessment of the euro zone's creditworthiness on Friday, contrasting sharply with the reviews of recent years and reflecting growing confidence in the region's fiscal and economic recovery.

On a day of credit updates scheduled for three of the region's top four economies, Standard & Poor's affirmed its ratings on France and Fitch raised its outlook on Italy and upgraded Spain.

S&P also raised its rating on Cyprus, suggesting the recovery is spreading to the peripheral regions left most exposed to the euro zone's financial crisis. The upgrade was its second of the bailed-out country since it came close to financial collapse last year.

Borrowing costs for the countries worst hit by the crisis have fallen sharply this year as the European Central Bank's loose monetary policy encourages investors hunting for returns to bet on their recovering economies.

Italy's benchmark 10-year bond yielded 3.12 percent on the secondary market on Friday, not far from a record low of 3.07 percent hit last week.

Fitch improved by one notch Spain's sovereign credit rating to BBB+, three steps above junk.

Fitch also boosted its outlook on Italy to stable, with the sovereign rating affirmed at BBB+. That followed an upgrade earlier this month of its outlook on bailed-out Portugal to positive from negative.

Italy was a fulcrum of the debt crisis a couple of years ago, along with Spain, whose sovereign rating many investors and analysts in Madrid expect Fitch to upgrade or underpin with an improved outlook later on Friday.   Continued...

People shop in Madrid's Puerta del Sol square December 23, 2013. REUTERS/Juan Medina