ATHENS, Greece - Standard & Poor's ratings agency on Tuesday upgraded Greece's credit grade by 6 notches, yanking the debt-heavy country out of default but still keeping its devalued bonds in junk status.
The agency said the upgrade to B- — the highest grade it has given Greece since June 2011 — reflected its view that the other 16 European Union countries using the euro are determined to keep Greece inside the currency union.
It also gave Greece a stable outlook, meaning it is less likely to change its rating again soon.
"The stable outlook balances our view of eurozone member states' determination to support Greece's eurozone membership and the Greek government's commitment to a fiscal and structural adjustment against the economic and political challenges of doing so," the agency said in a statement.
Greece's finance minister welcomed the upgrade, but pledged to forge on with promised reforms and savings measures.
"It's a decision that creates a mood of optimism, but we are well aware that we still face a long uphill course ahead," Yannis Stournaras said. "We are not relaxing in our efforts."
An upgrade was expected since S&P had earlier this month temporarily lowered Greece's rating to the bottom of its scale — 'selective default' — because the country was buying back its own debt. The agency said that because the buyback did not force any investors to sell their bonds back — which would have constituted a default — it was raising the rating back up.
The bond buyback was successfully completed last week, and will reduce the country's debt by some €20 billion ($26.4 billion).
The size of the upgrade suggests EU leaders are seeing some results in their effort to bring Greece's debt load back under control.
However, the credit rating is increasingly losing any market relevance because there are very few private sector investors still holding Greek bonds. After completing the buyback and receiving multiple bailout packages over three years, Greece now owes the bulk of its debt to fellow eurozone states, the IMF and the European Central Bank.
Greece's government bonds have been rated as non-investment grade — or junk — since 2010, when the country's finances imploded after Athens admitted it had severely underestimated its budget deficit.
For more than two and a half years, the country has depended on billions in rescue loans from its European partners and the International Monetary Fund. To secure the bailouts, Greece has implemented harsh austerity measures that slashed incomes, bled the health and welfare systems and drove thousands into deep poverty.
The cutbacks and repeated tax hikes are meant to reduce the deficit, but they also hurt the economy. Greece has been in a deep recession that has cut economic output by 20 per cent over the past five years and brought unemployment to a record high of 26 per cent — with about 1,000 jobs lost every day since 2010.
Greece on Monday received a massive rescue loan installment worth €34.3 billion, after completing the bond buyback in which it paid €11.29 billion to cancel debt worth €31.9 billion.
The government said Tuesday that deficit cutting efforts remained on target, with the January-November shortfall at €12.9 billion, compared with €21.5 billion for that period in 2011.
S&P's Greek rating is the highest among the three main agencies. Fitch has Greece rated at one notch above default, while Moody's still lists the country as being in default.
Although Greece is unable to finance itself on long-term bond markets, it maintains a presence in short-term debt markets through regular auctions.
On Tuesday, it raised €1.3 billion ($1.71 billion) in a treasury bill auction at slightly lower interest rates compared with the last such sale five weeks ago.
The Public Debt Management Agency said the 13-week T-bills were sold at an interest rate of 4.11 per cent, edging down from 4.2 per cent rate last month.
S&P said that while bailout creditors assume that Athens will be able to return to bond markets by 2015, that access "remains subject to numerous domestic and external uncertainties."
Derek Gatopoulos contributed to this report.