Fitch gives US reprieve

Ratings agency Fitch scaled back the likelihood that it would strip the US of its AAA status yesterday, saying a recent agreement on the country's debt limit removed the imminent risk of a cut.

But the agency said the country still needed a plan to cut the deficit while sustaining recovery.

Fitch had warned for months that it might cut the US rating if there were a repeat of 2011's acrimonious debt-ceiling debacle.

Yesterday, the agency said last week's deal allowing the US government to borrow beyond mid-May was a positive step.

"Without the distraction of a near-term funding crisis for the federal government, Congress and the administration have the space to focus on the substantive fiscal policy choices necessary to place public finances on a sustainable path over the medium- to long-term," Fitch said.

The agency would probably confirm the US rating and take its outlook back to stable from negative if there is "agreement on a credible medium-term deficit-reduction plan consistent with sustaining economic recovery".

Rival rating firm Standard & Poor's cut the US rating to AA-plus from AAA in August 2011 but that did little to cool investor ardour for Treasuries, which went on to hit record-low yields less than a year later as the global economy remained gloomy.

When raising the debt ceiling again threatened to turn a once-routine operation into more fractious finger-pointing in Washington this year, Congress reached an agreement earlier this month to sidestep the issue - for now.

The bill passed by the House of Representatives suspends limits on the government's ability to borrow until May 19.

It does not specify a dollar amount for a debt ceiling increase but it does allow borrowing as needed to meet federal obligations that must be paid by that date.

Nevertheless, the US rating is not in the clear just yet.

Moody's Investors Service, which also rates the US triple-A, has a negative outlook on the rating.

The agency said it was looking particularly for an improvement in the debt-to-GDP ratio and the trajectory of the debt.