Municipal bond credit quality, already withering across the nation as state and city budget gaps grow, will continue to decline this year, Standard & Poor's Corp. said yesterday.

Leo C. O'Neill, the agency's president, predicted downgrades will "continue to exceed the number of upgrades -- at least throgh the balance of this year, and probably well into 1992."

He added "even an early end to the recession is unlikely to provide much relief for the many corporations and municipalities that have taken on substantial debt in recent years." He was quoted in a news release that contained a tally of rating downgrades for the first half of 1991.

According to the release, Standard & Poor's downgraded $11.6 billion of municipal debt, while it bettered the ratings on only $4.4 billion.

On the positive side, the rating agency news release says municipals had fared somewhat bettern than corporate bonds in this year's first half.

Standard & Poor's downgraded 197 municipal issues and upgraded 91 in the first half of 1991, while downgrading 422 corporate issues and upgrading only 88.

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