S&P downgrades Belgium to AA on funding pressures

NEW YORK (Reuters) - Standard & Poor's downgraded Belgium's credit rating to AA from AA-plus on Friday, saying funding and market risk pressures are raising the chances the country's financial sector will need more support.

S&P said difficulties in the country's banking system and the government's inability to respond to economic pressures contributed to the downgrade.

Belgium's government debt position has worsened in recent months, particularly after it bought the Belgian arm of failing French-Belgian bank Dexia (DEXI.BR) earlier this year.

Borrowing costs have increased sharply in recent days. The country's benchmark 10-year yield rose one percentage point to 5.832 percent on Friday from 4.817 percent at the beginning of the week.

"We think the Belgian government's capacity to prevent an increase in general government debt, which we consider to be already at high levels, is being constrained by rapid private sector deleveraging both in Belgium and among many of Belgium's key trading partners," S&P said in a statement.

(Reporting by David Gaffen; Editing by Padraic Cassidy)