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Moody's upgrades Uruguay to investment grade.

Moody's Investors Service on Tuesday upgraded Uruguay's sovereign ratings, citing the country's strengthening economic performance and making it the second ratings agency to grant the country investment grade. Squeezed between South American giants Brazil and Argentina, Uruguay is led by a former leftist guerrilla leader -- President Jose Mujica -- who has managed to promote investment by sticking to a fairly orthodox policy menu. Moody's promoted Uruguay to Baa3 from Ba1, with a positive outlook, saying the country's "economic fundamentals have strengthened and potential growth has increased, underpinned by an upward shift in total factor productivity." "As a result, the economy is capable of reporting higher growth rates on a sustained basis, a condition that benefits Uruguay relative to peers," Moody's said in a statement. In addition to the Moody's rating, Uruguay has an investment grade rating of BBB-minus with a stable outlook from Standard & Poor's. Since some bond funds require two investment grade ratings to buy sovereign debt, the move by Moody's was expected to make Uruguay available to new buyers. "Two out of three means that a lot of institutional investors are now open to investing in Uruguay," said Kathryn Rooney Vera, a Latin American strategist for Bulltick Capital Markets in Miami. "This is definitely a boon for Uruguay, particularly when we're talking about insurance companies and hedge funds that are looking for new places to invest," she added. Uruguay's government welcomed the announcement from Moody's. "The most important thing is not the rating itself but the fact that we have risen through the ratings scale," Uruguayan Economy Minister Fernando Lorenzo told Reuters. "The fundamentals that justify the upgrade are what's most important to us," he added. Uruguay has a speculative grade BB-plus rating from Fitch Ratings, with a positive outlook. SLOWING ECONOMIES The chief of the country's debt unit, which is part of the Economy Ministry, said she did not expect the upgrade to spark a major increase in demand for Uruguayan paper. "Our bonds are already trading as if they were investment grade," Azucena Arbeleche said. "They (investors) have already incorporated the fundamentals of the Uruguayan economy." Other Latin American sovereigns that enjoy investment grade ratings include Mexico, Peru, Colombia, Chile and regional powerhouse Brazil. Uruguay's economy grew 4.2 percent in the first quarter compared with a year earlier. Although the country has a long tradition of cattle-ranching and farming, tourism and newer endeavors like pulp mills also play a key role. The country's gross domestic product rose 5.7 percent in 2011, marking a ninth straight year of growth. Most major economies in Latin America are expected to grow at a more moderate pace in 2012, highlighting the impact of Europe's debt crisis and weakening external demand. Brazil and Argentina have made protectionist moves to shield their own industries, hurting trade with Uruguay and flouting the norms of the Mercosur trade bloc, which also includes Paraguay and Venezuela. Economic growth is sluggish in Brazil and is slowing sharply in Argentina, where government controls are hurting business and consumer confidence. Historically, Uruguay's economic health has hinged on that of its bigger neighbors. The country plunged into crisis when Argentina defaulted on its debts and went into a deep recession in 2001-02. Since then, however, Uruguay has worked to diversify its production and export markets while also reducing dollar-denominated government debt.

Source: By Luciana Lopez and Malena Castaldi NEW YORK/MONTEVIDEO, July 31 (Reuters)


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