Fitch affirms US at AAA, outlook stable

Fitch Ratings said on Tuesday it affirmed the United States' top-notch credit rating at AAA, giving the world's largest economy a reprieve after it was downgraded by Standard & Poor's little more than a week ago.

Fitch said the outlook for the rating was stable.

"The affirmation of the US 'AAA' sovereign rating reflects the fact that the key pillars of US's exceptional creditworthiness remains intact: its pivotal role in the global financial system and the flexible, diversified and wealthy economy that provides its revenue base," Fitch said in its statement.

"Monetary and exchange rate flexibility further enhances the capacity of the economy to absorb and adjust to 'shocks'."

"Fitch will review its fiscal projections in light of the outcome of the deliberations of the Joint Select committee (due by end November) as well as its near and medium-term economic outlook for the US by the end of the year," it said.

"An upward revision to Fitch's medium to long-term projections for public debt either as a result of weaker than expected economic recovery or the failure of the Joint Select Committee to reach agreement on at least USD1.2trn of deficit-reduction measures would likely result in negative rating action," it said.

Pierre Ellis, senior economist, Decision Economics, New York reacted that S&P had a very specific basis for their concern which was that there was no long-run plan for budget control.  "Fitch certainly is correct with respect to the breadth of the United States' potential revenue sources, but it is choosing not to look at the implied demand on that revenue in the entitlements budget as it now stands. It is putting a little more faith in the common sense of Congress and the Administration with respect to getting the budget situation under control," he said.

Boris Schlossberg, director of currency research, GFT said that it is helping risk a little bit. "All the futures tightened up a little bit. Small boost to risk assets but all eyes are on the summit. That will be the big headline of the day," he said. While Omer Esiner, senior market analyst, Commonwealth Foreign Exchange said that this should provide a some scope for further improvement in risk appetite. "Stocks will push a bit higher and ironically the dollar will struggle as it loses some of its safe-haven bid. Generally speaking, though, there was never any real concern about Fitch or Moody's downgrading the US, so I don't think this is going to have much market reaction. The bigger story today is the meeting bewteen (France's President Nicholas) Sarkozy and (Germany's Angela) Merkel. If markets are disappointed by the results of that, we could see risk aversion come back," he also said.

The US stock index futures rose slightly and the bond prices pared earlier gains. US Dollar too rose against the yen.