[SEOUL] Standard and Poor's raised South Korea's long-term sovereign credit rating to AA from AA-minus with a stable outlook, underscoring the country's record of steady economic growth and improved fiscal and monetary flexibility.

"We expect the rating to remain unchanged over the next two years. Beyond the outlook horizon, Korea's economic performance could revert to the mean of other developed economies as Korea's wealth levels rise further, its labour force ages, and Chinese growth moderates," it said in a statement on Monday.

The won erased some of its earlier losses against the dollar on the news and was trading nearly flat at 1,110.8 as of 0435 GMT.

S&P added the South Korean economy remains "well-diversified" and is not dependent on one industry or export market.

The country's monetary policy provides strong support for sustainable economic growth, the ratings agency said, although high household debt could constrain monetary flexibility.

It noted the chief weaknesses in South Korea's credit fundamentals remain its contingent liabilities and geopolitical risks sparked by North Korea, which has persistently engaged in provocations like missile launches in recent months.

South Korea's finance ministry welcomed the decision, saying it hopes for the upgrade to contribute to stabilising local markets amid offshore risks like the recent Brexit vote, a pending interest rate hike by the US Federal Reserve and a slow Chinese economy.

The last time S&P raised South Korea's sovereign rating was in September last year.

REUTERS