NEW YORK (Reuters) - Standard & Poor's on Monday cut its ratings on Washington Mutual Inc (WM.N) into junk territory, citing exposures the bank has to bad mortgage debt and volatile markets.

"The company's weak equity pricing in the markets is also a concern, and it increasingly appears that market conditions could overtake credit fundamentals and leave the company with greatly diminished financial flexibility," S&P said in a statement.

The bank's liquidity, however, is adequate to meet its fixed obligations through until the end of 2010, S&P said. "During the past year, WaMu has conservatively and prudently managed its holding company liquidity position," the rating agency added.

S&P cut WaMu's counterparty credit raring to "BB-minus" three steps below investment grade, from "BBB-minus," the lowest investment grade. The outlook is negative, indicating an additional downgrade may be likely in the next two years.

"Should earnings, capital levels, or liquidity weaken precipitously, we could lower the ratings further," S&P said.

(Reporting by Karen Brettell;)

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