LONDON/KIEV. May 12 - Moody's Investors Service has downgraded Ukraine's foreign and local currency government bond ratings to B2 from B1, and assigned a negative outlook, mainly to reflect the continuing fragility of both the Ukrainian macroeconomy and its banking system.

"A supplementary reason for the downgrades is the uncertainty generated by a series of capital controls implemented by the National Bank of Ukraine to ration foreign currency," said Moody's Vice President Jonathan Schiffer. "These controls have already contributed to a foreign payments default by one of Ukraine's banks."