Ratings agency Fitch cut Ukraine`s sovereign outlook to negative on Thursday, warning of deteriorating economic fundamentals and a rising risk of a currency crisis, according to Reuters.

Fitch, which rates Ukraine as BB-, said a sharp drop in the currency would exacerbate already high inflation, affecting asset quality in the banking system where 51 percent of loans were denominated in foreign currency.

It warned a further rise in risk of an external financing crisis would likely trigger a downgrade.

"The negative outlooks signal Fitch`s concerns that Ukraine faces a growing risk of a currency crisis, driven by a widening current account deficit and deteriorating financial prospects," said Andrew Colquhoun, director in Fitch`s sovereign group.

"Strong capital inflows and reserves growth so far in 2008 are evidence of some resilience, but Ukraine faces growing risks with deteriorating fundamentals."

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