Fitch Ratings on Monday raised Argentina's credit ratings out of default, following the completion of a debt swap last month, but said the deal is not enough to open new financing sources for the country.

Fitch assigned to Argentina's foreign-currency bonds a B rating, or five notches into junk rating, noting that the country has removed from the market more than 90 percent of the bonds it had defaulted on in 2002.

In Fitch's view, this represents a positive step toward normalizing relations with creditors, the ratings agency said in a statement, though it said that the country's financing flexibility remains restricted.

Access to voluntary debt markets will be dependent on investors' risk perception and the development of legal challenges by holdout bondholders, Fitch said.

Argentina last month managed to obtain about 70 percent of investor acceptance for an $18.3 billion swap of defaulted debt with the reopening of its 2005 debt restructuring.

But about $6 billion of defaulted bonds are sill owned by holdout creditors who rejected the swap. Their lawsuits have blocked international bond sales by the government, which needs financing to keep high state spending ahead of presidential elections in October 2011.

Fitch said Argentina's financing needs appear manageable during the next two years thanks to continued intra-public sector borrowing, significant holdings of government debt by public sector entities and the country's ability to tap into central bank reserves.

However, the agency said Argentina's ratings remain constrained by a volatile macroeconomic performance, a weak policy framework and still-high government debt ratios relative to B-rated countries. (Additional reporting by Daniel Bases; Editing by Leslie Adler)

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