NEW YORK (Daniel Basses) - Fitch Ratings said on Tuesday the agreement to raise the borrowing capacity of the United States means the risk of a sovereign default is "extremely low" and commensurate with a AAA rating.
However, Fitch pointed out that without significant changes in fiscal policy the U.S. debt to gross-domestic product ratio "will reach 100 percent by the end of 2012, and will continue to rise over the medium term - a profile that is not consistent with the United States retaining its AAA sovereign rating."
The firm said it expects to conclude its scheduled review of the U.S. sovereign rating by the end of August.
Even after a bruising battle in Congress to complete a $2.1 trillion deficit reduction deal, Fitch said the AAA status remains strong.
Financial markets took the release differently.
U.S. Treasuries added gains after the Fitch comments. Wall Street stocks and the dollar were stuck in negative territory.
"Fitch expectedly kept the rating AAA, which is essentially what the market had already been pricing in. The more important question here is whether the bill will be enough to appease S&P, which wanted $4 trillion in cuts, with many in the market believing that there is a realistic chance of a downgrade from S&P," said Gennadiy Goldberg, fixed income analyst at 4Cast Ltd. in New York
(Reporting by Daniel Bases, Pam Niimi, Chris Sanders, and Richard Leong; Editing by Andrew Hay)
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