UPDATE 2-Fitch, Moody's may cut DSG credit rating to "junk"

(Adds Moody's statement, updates credit default swaps)

LONDON, April 11 (Reuters) - Two ratings agencies on Friday warned they may cut pan-European electrical goods retailer DSG International's credit ratings to "junk" status after the company issued its second profit warning in three months.

Fitch Ratings said it had placed DSG's (DSGI.L: Quote, Profile, Research) BBB- issuer default rating, the lowest in the investment-grade category, on Rating Watch negative. Moody's Investors Service said it may cut DSG's Baa3 long-term rating.

"This rating action follows DSG's business update on 10 April 2008, where it was announced that the trading environment continued to be challenging across the markets in which DSG operates, especially in the UK, Italy and Spain," Fitch said in a statement.

DSG, whose store chains include high-street staples Currys and PC World in Britain, UniEuro in Italy and Elkjop in the Nordic countries, said on Thursday that annual underlying pretax profit would be between 200 million and 210 million pounds, versus earlier guidance of around 250 million pounds [ID:nL10455331].

"This is DSG's second profit warning announced this year as the retail environment has proven to be more challenging than previously anticipated. This is particularly true for retailers selling items of a discretionary nature such as DSG," said Ching Mei Chia, an associate director in Fitch's European retail and consumer products team.

The agency said it would look particularly at DSG's new business strategy, due to be announced in May, in resolving the watch placement.

Moody's too said it would look at the business review. It said any cut in the rating would probably be limited to one notch.

"DSGi's performance is being hit by difficult trading conditions in the UK, where reduced consumer discretionary spend and an increasing demand for promotions are exerting pressure on the group's margin," said Yasmina Serghini, Moody's lead analyst for the company.