S&P upgrades Greek credit rating

Two years after nearly going bankrupt and crashing out of the euro zone, Greece has staged a turnaround by getting its finances back on track. It ended a four-year exile from the bond markets in April.

"The upgrade reflects our view that risks to fiscal consolidation in Greece have abated," S&P said in a statement raising its rating to 'B' from 'B-'.

"The outlook is stable, balancing our view of Greece's progress in fiscal consolidation against the still-weak economic recovery and political resolve to continue with structural and institutional reforms."

It said it expected Greece to post primary budget surpluses of 2% of GDP through 2017 and that funds held by the country's bank bailout fund would be enough to cover any new recapitalizations.

The upgrade follows similar moves by other ratings agencies in recent months as Greece prepares for a return to growth this year, after a six-year recession that wiped out a quarter of the economy.

Fitch raised Greece's rating to B in March and Moody's upgraded it to 'Caa1' in August. All three ratings remain in junk territory, reflecting Greece's high ratio of debt to gross domestic product, which is expected to peak at 177.2% of GDP this year.

Analysts said the S&P upgrade was in line with expectations of a one-notch upgrade that would align its ratings with those of the other agencies. The next series of ratings upgrades will be more significant, they said.

"That will push Greece into investment grade from junk," said Takis Zamanis, the head trader at Beta Securities. "This will probably happen if political risk and risk from stress tests in the banking sector are eliminated."

Fears the radical leftist party SYRIZA will gain power in the event of early elections and worries that stress tests could reveal a large capital hole for Greek banks have hung over the country in recent months.

On the debt front, Greece is expected to hold negotiations with its lenders on further debt relief later this year.

Athens and its EU and IMF lenders, which have bailed it out with more than 240 billion euros in aid since 2010, forecast growth of 0.6% in 2014, thanks to a surge in tourism and signs of a rebound in investment. S&P, however, predicted that Greece would not emerge from recession until next year.