Moody's strips Ireland of its last AAA credit rating

By Andras Gergely and Carmel Crimmins

DUBLIN (Reuters) - Moody's stripped Ireland of its last AAA credit rating on Thursday and warned Prime Minister Brian Cowen he needed to inflict more fiscal pain on his recession-wracked country or risk a further costly downgrade.

Cowen has had to put Ireland on a five-year austerity diet after a debt-fuelled property binge transformed the former "Celtic Tiger" economy into one of the industrialised world's worst performers when the housing market crashed.

Moody's said the government's corrective actions and low debt levels before its economic meltdown meant that it needed to carry out only a moderate downgrade at this stage. But it cautioned that the downside risks outweighed the upside risks.

The agency, which cut Ireland's rating to 'Aa1', said it would be closely watching Cowen's attempts to squeeze 4 billion euros in savings in the next budget in December.

But Moody's signalled it would not follow rival Standard & Poors in a rapid round of downgrades. "A meaningful fiscal adjustment will require an additional structural improvement of Ireland's primary budget balance," said Dietmar Hornung, Moody's senior analyst.

"But at this juncture I don't see imminent issues that would force us to change the rating in the short term," Hornung said in an interview with Reuters.

The loss of the AAA altogether was expected after Standard & Poor's cut its rating twice this year to AA, while Fitch downgraded Ireland by one notch to AA+ in April.

The euro hit the day's low against the dollar following Moody's action but the spread between Irish and German government bonds rose only slightly and the cost of protecting Irish government debt against default barely moved.