Moody's says may downgrade Belgium's credit rating

By Daniel Bases

NEW YORK (Reuters) - Moody's Investors Service said on Friday it may cut Belgium's Aa1 sovereign credit rating, citing its struggles to reign in high levels of public debt and concerns about long-term funding risks.

Belgium's rating was formally put on review for possible downgrade by Moody's, which historically means a decision is due within 90 days.

The current rating is one notch below Aaa status, the highest level given. Belgium is rated AA-plus with a negative outlook from both Standard & Poor's and Fitch Ratings.

"The material increase in long-term funding risks for euro area sovereigns with high levels of public debt, such as Belgium, as a result of the sustained fragility in the wholesale finance environment for euro sovereigns and banks stemming from the sovereign debt crisis," contributed to its decision, Moody's statement said.

There is further concern about the negative impact on public debt from a deterioration in the economic health of the region.

Concerns about Europe's banking sector became acute earlier this week with news that Franco-Belgian financial services group Dexia needed rescuing by authorities.

Dexia's shares fell 42 percent this week and is on the verge of being split up after the twin blows from its heavy exposure to Greece's precarious debt position and troubles accessing wholesale funding.

In the course of its near-term review of Belgium's rating, Moody's said it will include a close look at the potential for additional government measures to support "the banking system, or individual banks."

"In this regard, Moody's intends to assess the potential costs and additional contingent liabilities that the government may incur in supporting the Dexia Group."

(Reporting by Daniel Bases, Pam Niimi and David Gaffen; Editing by Diane Craft)