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UPDATE 3-Moody's says may cut Spain rating, sees no bailout

MADRID, Dec 15 (Reuters) - Ratings agency Moody's said on Wednesday it had put Spain on review for a possible downgrade because of its high funding needs and doubts about its banking sector and regional finances, prompting the euro to slide. However, the agency said it did not expect Madrid to have to resort to an EU bailout as Greece and Ireland have. "Moody's does not believe that Spain's solvency is under threat and in its base case assumptions does not expect the Spanish government to have to ask for EFSF liquidity support," Moody's lead analyst on Spain Kathrin Muehlbronner said in a statement. "However, Spain's substantial funding requirements, not only for the sovereign but also for the regional governments and the banks, make the country susceptible to further episodes of funding stress." The euro extended the day's losses on the announcement. No one at the Economy Ministry was immediately available to comment. The ratings agency, which has an Aa1 rating on Spain, cited the country's vulnerability to funding stresses, weak market confidence and the possibility of greater public debt should the banks need further capitalisation. "(Moody's cites) issues that have been on the radar screens for quite some time, but nonetheless at this particular juncture it does have the potential to generate more negative impact on market sentiment," said Nick Matthews, economist at RBS. "There's been a question mark over the need to capitalise the banking sector for quite some time now." Earlier this week, Moody's kept its negative outlook on Spain's banks, citing concerns over access to market funding and their capitalisation. "(Moody's) have the same doubts about sovereign debt as the market, that's why spreads have widened against German bonds," said Jose Carlos Diez, economist at broker Intermoney. "The government is taking measures to tackle those problems." Spain has been under intense scrutiny from international markets since Ireland was forced to take a 85-billion euro aid package in November on worries over similarities between the countries' property bust and banking systems. The government has denied it would also need to apply to the European Financial Stability Facility (EFSF) and rejected any comparison between its economic position and Ireland's. "Moody's ... continues to view Spain as a much stronger credit than other stressed euro zone countries," the ratings agency's statement said. "This is reflected in the significantly higher rating for the Spanish sovereign. Moody's review will therefore most likely conclude that Spain's rating will remain in the Aa range." (Reporting by Paul Day, Sonya Dowsett and Rodrigo de Miguel; editing by Mike Peacock) Keywords: SPAIN RATINGS/ (elizabeth.oleary@reuters.com; +34 91 585 8295; Reuters Messaging: elizabeth.oleary.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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