Don't try to do without IMF, Fitch tells Hungary

LONDON, Oct 10 (Reuters) - Fitch Ratings warned Hungary onWednesday not to go without International Monetary Fund supportafter months of wrangling which has failed to resolve the futureof talks on a financing deal.

Pressed on the issue, the head of Fitch's Emerging Europesovereigns unit did not say whether Fitch would cut Hungary's'BB+' sovereign rating if the indebted central European countryfailed to secure a financing backstop.

But he did say the negative outlook on the rating - whichsignals a cut is possible - would remain in the event the talkscollapse.

"Recently there has been some talk of Hungary going italone, that would bother us. They do have weaknesses, there is alot of market volatility and they wouldn't be well-placed todeal with that," Paul Rawkins told a conference in London.

Asked if Fitch would cut, he later added: "It wouldcertainly mean that the outlook would remain negative. Theconcern would not just be the concern about repaying IMF money,it's also EU money."

Prime Minister Viktor Orban, whose government firstsignalled its plan to secure a multi-billion euro loan from theIMF and European Union nearly a year ago, said on TuesdayHungary may still go it alone next year.

He said the issue of whether "junk-rated" Hungary, whichneeds a safety net to curb borrowing costs and rebuild marketconfidence hurt by years of unorthodox policies, would strike anIMF deal would be decided by the first quarter of 2013.

While Orban continues to talk tough for his domesticaudience, Hungary did move one step closer to an agreement lastweek by abandoning a planned tax on its central bank andannouncing 397 billion forints worth of new budget cuts for2013.

Central Europe's most indebted nation must pay back theequivalent of about 3.6 billion euros to the IMF alone next yearfrom a previous rescue package that pulled the country back fromthe brink of bankruptcy in 2008 when the global crisis began.

Fitch cut Hungary's long-term foreign and local currencyIssuer Default Ratings (IDR) by one notch to 'BB+' in Januaryand kept the rating on negative outlook.

Moody's and Standard & Poor's also rate Hungary belowinvestment-grade, both with a negative outlook.

Fitch then cited a deterioration in the country's fiscal andexternal financing environment and growth outlook, caused inpart by unorthodox economic policies which have underminedinvestor confidence.

Budapest has not tapped international debt markets this yearand said it would only do so after an IMF/EU agreement isreached.

(Reporting by Carolyn Cohn and Shadia Nasralla; Writing byGergely Szakacs)

((gergely.szakacs@thomsonreuters.com)(+36 1 327 4748)(ReutersMessaging: gergely.szakacs.thomsonreuters.com@reuters.net))