BEIJING - Standard & Poor's (S&P) affirmed China's sovereign ratings on Tuesday and said the outlook remains stable, citing the nation's "exceptional" growth prospects, holdings of overseas assets and modest government indebtedness.

China's long-term credit rating is AA- and its short-term rating is A-1+, the ratings company said in a statement.

S&P raised the nation's rating to the fourth-highest level on Dec 16, 2010.

Kim Eng Tan, an S&P analyst in Singapore, said Tuesday's release was an annual report on the Chinese sovereign grade.

S&P said it might raise the nation's credit rating if structural reforms lead to a "more vibrant" domestic debt capital market and if the government moves to a greater reliance on market-based macroeconomic management tools and a more flexible exchange rate.

The rating might be cut if reform efforts fade, the nation's economic performance becomes "markedly weaker" and conditions in the banking industry worsen more than expected, it said.

China's central bank last week reduced the amount of cash banks must set aside as reserves for the first time since 2008. It acted to support lending and growth as the European debt crisis threatens to sap exports and investment and as output moderates after a government campaign to cool inflation.

Reports this week may show that exports grew last month at the slowest pace since gains resumed in 2009 and that inflation eased to its lowest rate in more than a year.

The pace of China's expansion is likely to moderate to close to 8 percent over the next five years from an average of 11 percent in the 2006 to 2010 period, S&P said.

Government indebtedness should continue to fall as a share of GDP, with net government debt declining to close to 10 percent of GDP by 2014, it said.

Still, China's strengths are offset by weaknesses associated with its "low middle-income economy, restricted information flows and the government's continued reliance on direct administrative tools to manage the economy", S&P said.

The ratings agency put Germany, France and 13 other euro-area nations on review for a possible downgrade on Monday.

It said that "continuing disagreements among European policy makers on how to tackle" the region's debt crisis risk damaging their financial stability.