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Source: Reuters
By: Daniel Bases and Pam Niimi in New York and Jorge Otaola in Buenos Aires; Writing by Helen Popper; Editing by Andrew Hay

* Follows two months after Fitch Ratings upgrade

* Argentine economy seen growing by up to 9 pct this year

* Gov't completed $12.3 billion debt swap in June (Adds new analyst comment, context)

NEW YORK/BUENOS AIRES, Sept 13 (Reuters) - Standard & Poor's raised Argentina's long-term foreign currency credit rating by one notch on Monday due to strong growth and a lower debt load, but the rating remains deep in junk territory.

The upgrade to B from B- follows two months after Fitch Ratings raised its rating on Latin America's No. 3 economy, which the government sees growing by about 9 percent this year. [ID:nN12186032]

The rating maintains a stable outlook but is still mired deep within speculative territory, S&P said, citing nagging political tensions in the country a year before the next presidential election.

"The combination of a strong economic recovery in 2010 supported by favorable external conditions that are expected to persist over the medium term should ease rollover risk," the statement said.

"Despite the prevalence of a confrontational political and economical approach that has increased polarization, we expect GDP to increase by 7 percent in 2010 and 4.5 percent in 2011," S&P said.

Economic analysts said the upgrade was a positive sign for the government as it weighs returning to global credit markets for the first time in eight years following completion of a $12.3 billion swap of defaulted swap in June.

However, they said it would not be enough to guarantee Argentina the rates it seeks to pay on any new bond sales.

"It's a subtle difference, but its understandable as the government seeks to return to voluntary credit markets," said Roberto Drimer, an analyst at the VaTnet consultancy. "This is a step, necessary but not sufficient."

Analysts say Argentina's credit ratings will continue to suffer due to the unorthodox economic policies embraced by President Cristina Fernandez and high inflation, running at an annual rate of about 20 percent, according to private forecasts.

"The macroeconomic fundamentals of the country would perhaps warrant an even higher rating were it not for unorthodox nature of the policies in place," said Alberto Ramos, senior economist at Goldman Sachs in New York.

"If you have almost unfettered access to central bank reserves to pay your liabilities, you reduce your debts -- no other country has that privilege," he added, referring to Fernandez's tapping foreign reserves to pay debt this year.

The debt repayment plan sparked months of political tensions earlier this year, underlining persistent uncertainties that look set to linger as campaigning gathers pace ahead of next year's presidential vote.

Moody's Investors Service rates Argentina one notch lower, at B3, while S&P's new rating is now equal to that of Fitch Ratings.

That stands in stark contrast to neighboring Brazil and Chile, which are rated investment grade, something Uruguay hopes to attain within the next 18 months.

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