Ireland Set a Class Apart as S&P Upgrades Outlook

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Ireland has been given a pat on the back by ratings agency Standard & Poor's (S&P), which raised its outlook on the country's sovereign rating, further highlighting the contrast between Ireland and its struggling euro zone counterparts, analysts said.

S&P upgraded Ireland from stable to positive, saying the Irish government may meet its targets for debt reduction faster than expected.

(Read More: 'Uneasy Calm' in Euro Zone Bonds Could Be Over)

The move comes six months ahead of the nation's planned exit from its 67.5 billion euro ($88 billion) bailout program and days after S&P cut Italy's credit rating from BBB-plus to BBB, saying it expected the country's gross domestic product to fall by 1.9 percent this year..

Analysts said S&P's upgrade of Ireland further highlighted the difference between the nation, seen as the most successful of Europe's bailed-out countries after returning to modest growth in 2011, and beleaguered Italy and Portugal.

"Ireland is the poster child for the consolidation process in the euro area's periphery. I think in terms of the timing we have had a shift in the outlook in the wrong direction for Italy and one in the right direction for Ireland, so that is drawing a contrast for what is happening in other countries compared to what is happening in Ireland," Ken Wattret, chief eurozone economist at BNP Paribas, told CNBC.

(Read More: ECB's Constancio: Policy to Remain Loose for a While)

"It is not that Ireland doesn't have problems, but they are moving in the right direction more quickly than some other countries have been, and that has been captured in the sovereign debt markets for a long time in terms of spreads between other peripherals."

S&P said Ireland could "over-achieve its fiscal targets and reduce its government debt faster than we currently expect," adding that the country's economic recovery is underway.

Meanwhile, a spike in Portugal's ten-year bond yields to over 8 percent earlier this month brought investors a fresh reminder that the euro zone crisis is far from over.

(Read More:Portugal in Bond Market Warning as Politics Remain 'Shaky')

"We have had the president of the Eurogroup talk about divergence between development in Ireland and Portugal, so this theme of divergence between Ireland and the rest has been prominent," added Wattret.

Nigel Cuming, chief investment officer at Canaccord Genuity, said the boost in sentiment for Ireland was a welcome relief, as the austerity measures it pushed through by way of severe cuts and taxes were much tougher than those imposed by other peripheral nations.

"The pain that was felt on the streets of Dublin is something that was not seen elsewhere in Europe," Cuming told CNBC, adding that the tentative signs of recovery, especially in the property market, were encouraging.

By CNBC's Jenny Cosgrave: Follow her on Twitter @jenny_cosgrave