Credit profile strength recovers with just 7% of ratings on negative outlook: Fitch

But the outlook for ratings is more negative in some important areas, notably euro zone peripheral countries.

According to a release, Fitch Ratings says in a new global credit outlook report that the credit environment continues to be dominated by macro themes and issues confronting sovereign credit - from austerity to bailout packages to debt ceilings. The benefits and pitfalls of strategies to improve growth and trim deficits are not yielding sustained results in key developed markets. However, in the face of such macro risks, Fitch's rating outlooks are continuing to stabilise across most sectors.

"There is a striking disconnect between the severe pockets of uncertainty and a backdrop of generally stabilising credit. Markets are focused on an exceptional confluence of events affecting confidence, so the question is whether these big-ticket issues will be resolved before positive trends are reversed," says John Olert, Fitch's Chief Credit Officer.

"Rating Outlooks have continued to stabilise, with just under 7% of ratings now on Negative Outlook - down from a peak of 18% in Q309 and on a par with the level in Q108," says Monica Insoll, Managing Director in Fitch's Credit Market Research group. While this trend partly reflects a recovery of credit-profile strength, in many sectors ratings have stabilised at a lower level than pre-crisis. Furthermore, the outlook for ratings is more negative in some important areas, notably euro zone peripheral countries. The problems in these countries have a knock-on effect for their respective local and regional governments, which are getting squeezed between reduced state funding and lower tax collection and other revenue.

In the US, the rating Outlook is Negative for a small number of revenue-supported public finance sectors. However, this shift comes from a backdrop of overall very strong credit profiles. A negative bias to Outlooks also remains in US RMBS, with house prices still on a declining trend and the loan foreclosure process having become more complex.

A disorderly Greek default would be likely to result in severe market volatility, pressures on sovereign as well as bank funding and liquidity, and a broader repricing of euro area sovereign credit. The risk of contagion to other distressed and vulnerable euro area sovereigns and their banking systems is material. Resolution of the Greek crisis is therefore a necessary, though not a sufficient condition for preventing a broader systemic threat to the euro area.

Likewise, default by the US -- the world's largest borrower and issuer of the pre-eminent reserve currency -- would threaten US and global financial stability. However, Fitch considers this possibility remote.'

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