S&P cuts Irish rating to A-; further cuts eyed

An employee counts Euro notes at the Bank of Taiwan head office in Taipei May 10, 2010. Standard & Poor's cut Ireland's rating by one notch to A- on Wednesday and warned it could strip the euro zone struggler of its 'A' credit status by April when uncertainty over capital top-ups for Irish banks clears.

DUBLIN (Reuters) - Standard & Poor's cut Ireland's rating by one notch to A- on Wednesday and warned it could strip the euro zone struggler of its 'A' credit status by April when uncertainty over capital top-ups for Irish banks clears.

S&P is the last of the three main rating agencies to retain an 'A' grade for Ireland, which was forced to apply for an 85 billion euros EU/IMF bailout last year in the face of an escalating banking crisis.

The premium investors demand to hold Irish debt over benchmark German paper narrowed 29 basis points to 562 basis points in relief that the downgrade wasn't more severe.

Moody's slashed Ireland's rating by five notches in December to Baa1, three grades above junk, with a negative outlook, also citing uncertainty about the cost of the bank bailout.

Fitch cut its rating by three notches to BBB+ with a stable outlook in the same month. Asked at a presentation in Milan about the S&P cut, Fitch's sovereign ratings director Douglas Renwick noted his agency's outlook on Ireland was stable.

S&P said the emergence of a European sovereign debt framework that could make it easier for Ireland to restructure could lead the agency to reconsider the country's creditworthiness.

But despite that risk, S&P said it expected Irish debt to remain investment grade even with the impact on state finances from an expected increase in Irish banks' capital requirements following the conclusion of a central bank review of the lenders' books by the end of March.

Ireland's central bank governor Patrick Honohan told Reuters last month that he expected the banks' loan loss provisions would rise as a result of the review, agreed as part of the EU/IMF deal.

S&P said a rise in unemployment could force it to raise its estimate for banks' additional capital requirements.

The number of people claiming unemployment benefit in Ireland fell by 6,900 in January, the biggest monthly drop since records began in 1967, but the rate of unemployment remained stubbornly high.

(Reporting by Carmel Crimmins; additional reporting by Francesca Landini; Editing by John Stonestreet)