Standard & Poor's has revised its outlook on Portugal's BB/B sovereign ratings to stable from negative, citing fresh evidence that European institutions will continue to support the country's efforts to get its fiscal house in order.
The euro perked up slightly on the decision, edging to a session high of $1.2996 before quickly relinquishing those gains to stand 0.1 percent higher on the day.
S&P's decision came after the Eurogroup and Finance Ministers announced their latest assessment on both Ireland and Portugal. In a statement, they said EU Finance Ministers commended the authorities' strong commitment to their respective adjustment programmes, which have already been successful in addressing previously accumulated imbalances.
"We therefore anticipate that Portugal's official European lenders are likely to extend their loans, thereby reducing the Portuguese government's refinancing risks and, to a lesser extent, its interest costs," S&P said.
"At the same time, we expect Portugal's official lenders... to adjust Portugal's fiscal consolidation path under the program, mostly to reflect the weaker-than-previously-assumed economic activity."
S&P said this should make Portugal's adjustment process more sustainable, both economically and socially, reducing the risk that the government will not comply with the programme.
S&P said it could cut Portugal's ratings if political commitment to the current structural adjustment diminishes and if European institutions back away from extending the maturity of Portugal's official debt.
"We could raise the ratings if export performance turns out to be much better than our current expectations or if investment picks up significantly," it said.
"This would, in our view, support Portugal's recovery and contribute to job creation, thereby strengthening the social contract. A more robust recovery would also contribute to a faster fiscal consolidation and debt reduction path, improving Portugal's fiscal indicators."
(Reporting by Ian Chua; Editing by Wayne Cole)