Moody’s Investors Service reported that corporate credit quality improved globally in the second quarter of 2006.

The ratio of global upgrades to downgrades stood at 1.6 during the second quarter of 2006, up from 1.2 during the first quarter of 2006 and the last quarter of 2005, Moody’s said. Much of the improvement in credit quality was driven by rating actions in the Asia-Pacific and Latin American regions, where upgrades sharply exceeded downgrades, it explained. Average credit quality improved only modestly in the North America and Europe, and, in fact, declined slightly in the Western European portion of the continent, the rating agency noted.

Issuers in the Asia-Pacific region again saw a much larger number of upgrades (57, or 9.9%) than downgrades (5, or 0.9%), Moody’s said. “The credit quality improvement in Asia during the last quarter continues the trend observed over the past 12 months in which 19.4% of Asia-Pacific issuers were upgraded and 2.8% were downgraded,” says Praveen Varma who authored the report.

Issuers in Latin America also saw many ratings raised: 9.7% went up in the quarter and just 3% were lowered, it reported. Latin American issuers on review either for upgrade or downgrade are roughly balanced, at 1.9% and 2.7%, respectively, according to Moody’s.

Rating upgrades only slightly outpaced downgrades in North America, reversing the trend over the last two quarters in which downgrades exceeded upgrades. Moody’s noted that the current distribution of rating reviews and outlooks suggests that North American credit quality is likely to decline somewhat over the next several quarters.

About 3.9% of North American issuers were upgraded and 3.7% were downgraded during the quarter. At quarter-end, however, about 5% of issuers were on review for downgrade, while only 1.7% were on review for upgrade. Furthermore, substantially more issuers in North America had negative outlooks (11.7%) than positive outlooks (7.5%), suggesting a decline in credit quality over the next few quarters, the rating agency said.

Globally, almost all industries had more issuers with negative outlooks than with positive outlooks, added Moody’s, with aerospace, automotive, and forest products under the most pronounced pressure. Last quarter, the automotive industry — along with building materials, and telecoms — also had significantly many more downgrades than upgrades. The industries for which credit quality improved significantly were thrifts, utilities, airlines, metals and mining, and banking.