A sign is displayed on the Morgan Stanley building in New York U.S., July 16, 2018. REUTERS/Lucas Jackson/File PhotoAug 7 (Reuters) - Brokerage Morgan Stanley on Monday warned that lofty U.S. equity valuations could be questioned by investors if aggressive fiscal spending is curtailed after the downgrade of sovereign debt by ratings agency Fitch last week. While aggressive fiscal spending could continue, given the debt ceiling has been raised, fiscal policy has limits as deficits would widen - one of the reasons for Fitch's downgrade. "Investors will to call into question equity valuations, which were already high before the recent rise in yields," Wilson said in a weekend note. "If fiscal spending must be curtailed due to higher political or funding costs, the unfinished earnings decline that began last year is more likely to resume."

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Persons: Morgan Stanley, Lucas Jackson, Fitch, Michael J Wilson, chalking, Wilson, Susan Mathew, Shweta Agarwal Organizations: New York U.S, REUTERS, U.S . Federal Reserve, Thomson Locations: New York, U.S, Bengaluru