Moody's Cuts Ukraine Outlook

Moody's Investors Service lowered Ukraine's outlook as the global liquidity crunch adds pressure to an economy already beset by racing inflation and political instability. The outlook for the former Soviet republic's foreign- and local-currency debt ratings was cut from positive to stable. Moody's downgrade follows similar moves by Fitch Ratings and Standard & Poor's.

The worldwide financial turmoil is prompting investors to shun riskier assets in emerging markets. Ukraine has the worst creditworthiness of Europe's emerging markets, based on the cost of credit-default swaps, which protect bondholders against default. The country is also heading for early elections on Dec. 7 after the second collapse of a ruling alliance between President Viktor Yushchenko and Prime Minister Yulia Timoshenko.

``Although Ukraine's government balance sheet remains strong at the moment, the current global market turmoil heightens the existing vulnerabilities,'' said Moody's Vice President Jonathan Schiffer said in the statement.

The hryvnia fell 3.7 percent 5.4400 to the dollar, its weakest level in more than a week, as of 2:25 p.m. in Kiev. The hryvnia has slumped 16 percent against the dollar since early September.

Fitch cut Ukraine's credit rating to B+ on Oct. 17 and Standard & Poor's put it on review for downgrades on Oct. 15.

Ukraine's foreign-currency denominated bonds are currently rated Ba3 by Moody's, a high-yield, or ``junk,'' level three steps below investment grade. The local-currency debt is rated a step lower at B1.