UPDATE 1-DBRS- US AAA rating stable, lack of deficit cutting plan "worrisome"

(Adds detail) By Steven C. Johnson

NEW YORK, Oct 11 (Reuters) - DBRS reaffirmed the United States top AAA credit rating on Thursday, citing the economy's productivity and flexibility, but said failure to stabilize a growing debt burden could threaten the rating in the future.

For now, the agency said the rating was stable, as the sheer size of the U.S. economy and the dollar's role as world reserve currency allowed the government to finance its debt cheaply.

It also said the U.S. economy "remains highly productive, diversified and flexible in response to external shocks."

But the lack of a medium-term plan to reduce the deficit was "worrying," and DBRS noted that general government debt, including that of states and municipalities, is expected to hit 106.7 percent of output in 2012, "well above those of other AAA-rated countries."

Moody's Investor Service, a rival ratings agency, issued a starker warning last month, saying the country could lose its AAA rating if budget talks in 2013 fail to produce policies that gradually decrease the country's debt.

Standard & Poor's stripped the United States of its AAA rating last year after Congress failed to agree to a long-term deficit reduction plan and brought the country to the brink of default as politicians bickered over raising the debt ceiling, the legal U.S. borrowing limit.

An immediate priority, DBRS said, was for Congress to address a slate of automatic spending cuts and tax increases, dubbed the "fiscal cliff," scheduled to take effect in January.

While allowing them to occur would sharply reduce the deficit, it would likely tip the economy back into recession. The Congressional Budget Office has said it could shrink U.S. gross domestic product by 2.9 percent in the first half of next year and cost two million jobs.

DBRS said it expects Congress to agree to delay at least some, if not most, of the planned spending cuts and tax hikes.

"Whatever the policy choice, failure to establish a viable medium-term plan to stabilize debt-to-GDP could result in a negative trend," the agency said. "Similarly, if there is another impasse over raising the debt ceiling, this could also result in downward rating pressure."

A medium-term plan would also have to include plans to address rising health care and retirement costs.

(Reporting by Steven C. Johnson; Editing by James Dalgleish)

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