S&P Affirms U.S. Credit Rating, Keeps Outlook Negative

NEW YORK ( TheStreet) -- Standard & Poor's Friday affirmed its 'AA+' long-term and 'A-1+' short-term credit ratings on the United States, but kept its outlook on the long-term rating negative.

The ratings agency said the outlook reflects "our opinion that U.S. sovereign credit risks, primarily political and fiscal, could build to the point of leading us to lower our 'AA+' long-term rating by 2014."

S&P expressed concerns that the 2012 presidential election could make it difficult for the Republicans and Democrats to work together but was confident that the parties will find a way to get together on a plan to avoid the so-called "fiscal cliff" that's looming when certain tax breaks and other policies, such as the payroll tax suspension, currently in place expire.

"Although the 2012 elections could resolve the U.S. fiscal debate, we see this outcome as unlikely," the agency said in a press release. "If, as commentators currently expect, the election is close, the race could, in our view, reduce bipartisanship from its already low level as each side strives to rally support by more clearly distinguishing itself from the other."

S&P continued: "One thing we do expect Republicans and Democrats to agree on--given an unemployment rate of about 8% and continued risks to the U.S. economic recovery--is avoiding sudden fiscal adjustment. We expect that a sudden fiscal adjustment could occur if all current tax and spending provisions, set to either expire or take effect near the end of 2012, go forward in accordance with current law."

The major U.S. equity indices have pulled back sharply since the start of May, influenced by the deterioration of financial conditions in Europe, a softening of U.S. economic data that culminated in a weak May jobs report last week, and worries about both the fiscal cliff and the coming end of the Federal Reserve's current monetary stimulus program Operation Twist at the end of the this month.

On Friday, Wall Street got a boost after President Obama advocated for Greece to remain in the eurozone and called on Europe's leaders to shore up the region's weaker banks.

The Dow Jones Industrial Average added 93 points, or 0.75%, to close at 12,554. Thanks mainly to Wednesday's big pop, the blue-chip index finished the week up 3.6% after closing negative for the year a week ago.

The S&P 500 tacked on nearly 11 points, or 0.81%, to settle at 1326. The index rose 3.8% for the week and is now up 5.4% in 2012.

The Nasdaq gained 27 points, or 0.97%, to finish at 2858. The index advanced 4% for the week, putting it up 9.7% year-to-date.

-- Written by Michael Baron in New York.

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