By Marc Jones
LONDON, Dec 12 (Reuters) - Fitch is comfortable with Ukraine's rating despite the massive protests over the government's shunning of a trade deal with the European Union, the agency's new chief sovereign analyst said on Thursday.
It downgraded Ukraine's sovereign rating by one notch last month - cutting the country to B-minus from B, with a negative outlook - and warned more cuts could be on the way because of a shaky financing position and possible roadblocks to foreign currency borrowing.
"We are still comfortable with the rating where it is at B-negative. That builds into it a lot of tolerance for the kind of political noise and developments we are seeing now," James McCormack told Reuters.
"The thing we are going to be watching very closely is potential capital flight, foreign exchange reserve numbers and thinking about how the stock of foreign exchange reserves matches up to the external financing needs."
The sudden decision by President Yanukovich on Nov. 21 to walk away from a trade-and-political agreement with the EU and revive trade with Ukraine's old Soviet master Russia has brought hundreds of thousands of protesters onto the streets.
Without international aid, investors also fear Ukraine will struggle to repay $7 billion of debt falling due next year, while it is also dealing with a balance of payments deficit and unpaid gas bills from Russia.
"When you are at that kind of rating level it really is a matter of looking at the flows and the stocks and seeing how they match up so that would be the factor in terms of the rating," McCormack added.
"From B- to downgrade someone into CCC would probably mean a default was something we were foreseeing. We are not quite there yet ... But the time horizon (for rating changes) becomes much shorter almost by definition." (Editing by Alison Williams)