By Dena Aubin

NEW YORK, Sept 26 (Reuters) - General Motors Corp.'s (GM.N: Quote, Profile, Research) ratings slide deepened on Monday as Fitch Ratings cut the world's largest automaker deeper into junk status, citing limited progress at cutting costs and risks surrounding Delphi Corp.'s restructuring.

Fitch has downgraded GM's ratings three times this year as the automaker battled soaring employee benefit costs and competition from foreign rivals. GM lost $2.5 billion in North America in the first half of 2005.

Fitch also cut its ratings on GM's finance arm, General Motors Acceptance Corp., citing its linkage with GM.

Recent sales incentives have lowered market prices, making GM increasingly vulnerable to sales volume declines, Fitch said. Persistently high gasoline prices are also expected to reduce demand for GM's large vehicles, which comprise the majority of its new products, the rating agency said.

"We are firmly committed to improving our performance in North America," said GM spokesman Jerry Dubrowski. "We recognize that there is work to be done to improve our cost position."

GM bonds with an 8.375 percent coupon due in 2033 were little changed at 79.75 cents on the dollar, versus 79.38 cents on Monday, according to MarketAxess. Its shares rose 8 cents, or 0.26 percent, to $31.15 on the New York stock exchange.

Fitch said it was concerned over the financial support GM may have to extend to Delphi Corp. (DPH.N: Quote, Profile, Research) to help the auto parts maker restructure. Delphi has been in talks with its former parent and the United Auto Workers on a deal to help it drastically cut costs.

GM has also been negotiating with the UAW since April to try to cut its own union health care and other benefits, and achieving those concessions will be the key to the automaker's turnaround, analysts said.

"Until we have concessions negotiated and agreed upon, no one's going to be excited about Ford and GM," said Diane Swonk, chief economist at Mesirow Financial.

"In the face of higher energy costs, it makes the situation look even bleaker, because they just don't have the vehicles to compete on a fuel-efficient basis with many of their foreign competitors," she said.

Fitch cut the senior debt rating on GM and General Motors Acceptance Corp to "BB," the second-highest junk rating, from "BB-plus." The rating outlook is negative, meaning another downgrade is likely over the next one to two years. Ratings downgrades usually raise borrowing costs. (Additional reporting by Poornima Gupta in Detroit)