Updates throughout with details from Moody's report, context

MEXICO CITY, May 20 (Reuters) - Moody's Ratings on Wednesday downgraded Mexico's credit rating to "Baa3" from a prior level of "Baa2", and changed its outlook to stable from negative, saying weaker fiscal anchors and conflicting priorities were undermining its policy credibility.

Moody's cited "a sustained weakening in fiscal strength that accelerated in 2024 and that we expect to persist", pointing to "rigid" spending, a "narrow" revenue base and support for state-run oil firm Petroleos Mexicanos, known as Pemex PEMX.UL.

Moody's said Mexico's "vulnerability to fiscal shocks has increased, particularly as we expect economic growth to remain subdued in the near-term and to return to trend growth around 2% only gradually."

Mexico's central bank predicted in its last quarterly report economic growth of 1.6% this year and 2% by 2027, while the government has predicted up to 2.9% growth next year.

Moody's said it considered that the economic strength of Mexico - Latin America's second-largest economy after Brazil - remains supported by a large and diverse economy and preferential access to the U.S. market.

Mexico, the U.S. and Canada are in the process of reviewing the USMCA trade agreement , one that has shielded Mexico from many sanctions imposed by the Trump administration last year.

Moody's noted that high levels of informality, as well as energy and water infrastructure bottlenecks and insecurity were "structural weaknesses" constraining Mexico's growth.

"While ongoing support to Pemex will continue to constrain fiscal consolidation, Mexico does not face macroeconomic imbalances that would amplify fiscal risks," the agency added, noting authorities had a "demonstrated capacity" to adjust policy in response to shocks.