UPDATE 3-Fitch lowers Vietnam outlook as inflation soars

(Adds quotes, updates forwards rates)

By Grant McCool

HANOI, May 29 (Reuters) - Fitch Ratings lowered the outlook on Vietnam's BB-minus sovereign rating to negative from stable on Thursday as double-digit inflation, a yawning trade deficit and banking woes strain the developing market economy.

In recent months and weeks, stock market investors have swapped shares for gold, consumers hoarded rice as prices leapt, workers gone on strike for higher wages and people rushed to buy dollars in the black market to pay off dollar-denominated debts.

Fitch, citing annual inflation that soared past 25 percent in May, affirmed a BB-minus foreign currency rating and the BB local currency rating, but criticised the Communist authorities for their handling of the economy.

"The policy response has been both too slow and too small as real policy interest rates remain deeply negative even following their recent increase," the rating agency said.

Vietnam's inflation, in double digits for the seventh straight month, is the second highest in Asia after Myanmar, where inflation is running at more than 30 percent this year, according to the International Monetary Fund.

The Southeast Asian country, where macroeconomic stability has been taken for granted as it boasted one of the world's highest growth rates since 2000, still had time to recover from this year's wobble, analysts said.

"The government needs to get better at managing information because people in the markets out there are acting defensively," said Jonathan Pincus, chief economist at the United Nations Development Programme in Hanoi. "If they knew more they would make better choices."