By David Gaffen
NEW YORK (Reuters) - Credit rating agency Standard & Poor's on Monday upgraded its credit outlook for the United States government to stable" from "negative," reducing the threat of a further downgrade to the country's sovereign rating.
S&P said the chances of a ratings downgrade is now "less than one in three" as improvements in tax receipts and economic performance are helping to bring down the country's debt levels.
The dollar rallied against the euro and yen and equity markets opened modestly higher. Investors sold safe-haven U.S. government debt, boosting the 30-year Treasury bond's yield briefly to a 14-month high.
In its release, S&P said recent increases in tax receipts and steps taken to address longer-term budget issues had improved the U.S. outlook. The agency raised concerns, however, about the ability of policymakers to tackle long-standing issues due to a deepening of the partisan divide in Washington in the last decade.
"We believe that our current 'AA+' rating already factors in a lesser ability of U.S. elected officials to react swiftly and effectively to public finance pressures over the longer term in comparison with officials of some more highly rated sovereigns and we expect repeated divisive debates over raising the debt ceiling," the agency said in a statement.
S&P said it expects the U.S. debt-to-GDP ratio stabilizing around 84 percent over the next few years, which would allow "policymakers some additional time to take steps to address pent-up age-related spending pressures."
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"The strong stock market has created tax revenues, which is certainly positive, and the economy continues a slow but steady growth path, so while we continue to print money, the overall debt numbers have stabilized and I think that's what the S&P is reflecting," said Tim Ghriskey, chief investment officer at Solaris Group in Bedford Hills, New York.
In August 2011 S&P became the first credit rating agency to downgrade the sovereign U.S. credit rating from top-rated "AAA" to "AA+," the second highest rating, and had left the U.S. credit outlook at "negative" at that time.
Rival agencies Moody's and Fitch currently both hold triple-A ratings on the United States. (Reporting by David Gaffen; Additional reporting by Alison Griswold; Editing by Chizu Nomiyama, W Simon and James Dalgleish)