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HONG KONG, Dec 1 (Reuters) - Standard & Poor's cut its outlook on Thailand on Monday to negative from stable, warning anti-government protests are threatening the country's economy at a time of a sharp global slowdown.
The action highlights the deepening concerns over Thailand's economy as yellow-clad protesters from the People's Alliance for Democracy (PAD) continue to occupy the country's main airport in a campaign to topple Prime Minister Somchai Wongsawat.
Other ratings agencies such as Moody's and Fitch are likely to follow suit should the political instability continue, analysts said, which could further hit the country's already reeling financial markets.
The demonstration "has caused serious disruptions to economic activities in the Kingdom and raises the possibility of widespread violence markedly. These developments will add to the negative pressures of a global slowdown on Thailand's economy", S&P analyst Kim Eng Tan said in the statement.
S&P said a downgrade of Thailand's sovereign ratings could follow if the economy weakens "sharply" as a result of the political instability, and if it causes a deterioration of the government's finances and the banking sector's asset quality.
Thailand has a foreign currency rating of BBB-plus by S&P, or the third-lowest investment grade rating. Both Fitch and Moody's rate the country at the same level.
Although Thailand has proven more resilient than other Asian economies due in part because it has less foreign capital investments, the political unrest is nonetheless coming amid a worsening outlook for the economy.
Like other Asian countries, Thailand is suffering from slowing exports and sluggish investment. The country last week said economic growth slowed to a seasonally adjusted 0.6 percent in the third quarter, the lowest in three-and-half years.
The protests have halted all flights from the main international airport since last week, hurting the key tourism and air freight sectors.
"It was inevitable that this was going to happen given the political turmoil," said Tim Condon, an economist at ING regarding the S&P action, adding he expected other credit agencies could follow suit.
"If this drags on, they certainly will because it's going to affect growth, and growth is the main determinant of the credit worthiness," he said.
Thailand's financial markets have already been hit from the standoff, with the benchmark stock index <.SETI> down more than 2 percent in late afternoon trading after the S&P statement. Shares are down 53 percent this year as of last week.
The Thai baht
Investors would thus have to pay $300,000 annually for protection against $10 million of Thailand's underlying debt, or $40,000 more than the cost for insuring against similarly-rated Malaysian sovereign debt. (Reporting by Rafael Nam; Editing by Kim Coghill)