UPDATE 1-S&P downgrades Puerto Rico debt to junk status

Feb 4 (Reuters) - Standard & Poor's on Tuesday cut its credit rating on Puerto Rico, dropping the cash-strapped U.S. territory's debt to junk-bond status on concerns about its ability to access capital markets.

S&P, which had placed Puerto Rico's rating on notice for a downgrade last month, said it now rates the commonwealth at "BB+," or one level below investment grade. It had previously rated it "BBB-."

With some $70 billion of tax-free debt, Puerto Rico has a long soured economy and has for months been under threat of a ratings downgrade to junk-bond territory by all three U.S. credit ratings agencies.

Moody's and Fitch Ratings have not announced ratings decisions.

S&P said it worried that Puerto Rico, a Caribbean island with 3.62 million people, has limited ability to sell more debt in the U.S.'s $3.7 trillion municipal bond market and faced possible cash shortages.

"We believe these liquidity constraints do not warrant an investment-grade rating," S&P said in a commentary.

S&P, which also cut its rating on the island's fiscal agent, the Government Development Bank, to BB, said that all of its revised Puerto Rico ratings remain on negative watch.