Obama, lawmakers face fresh doubts on debt deal

President Barack Obama and top Republicans faced growing pressure at home and abroad on Thursday to stop deficit talks from spiraling out of control and sending shockwaves through the global financial system.

Markets reacted skittishly after the fourth straight day of talks between Obama and congressional leaders hit a new low on Wednesday, while divisions within the Republican party seemed to increase the difficulty of striking a deal to extend the nation's borrowing authority and avoid a default after August 2.

The Democratic president clashed with Republican lawmakers during an acrimonious two-hour White House session that produced no progress toward a deal. A leading Republican said Obama walked out of the meeting.

China, the United States' biggest foreign creditor with more than $1 trillion in Treasury debt, urged Washington to adopt responsible policies to protect investor interests.

Beijing's comments followed a warning by Moody's Investors Service that it might strip the gold-plated U.S. credit rating if the $14.3 trillion credit limit was not raised.

Follow us

Standard & Poor's has also privately told U.S. lawmakers and top business groups that it might cut the rating if the government fails to make any of its expected payments, including Social Security checks, even if it makes all of its debt payments, a source in the meeting said.

The U.S. Treasury has warned that it will run out of money after August 2 to pay all of the country's bills if a deal is not reached to raise the debt ceiling, which caps the amount of money the United States can borrow.

Talks will continue on Thursday and Obama has vowed to keep meeting until a deal is reached.

The prospect of a cut in the United States' AAA credit rating hit stocksprices globally and weakened the dollar on Thursday. U.S. bond prices fell in New York and yields rose, in part due to the Moody's warning.

"It increases pressure on the politicians, and therefore, increases the probability that they will do what needs to be done," said Ward McCarthy of Jefferies & Co in New York.

PUT ASIDE POLITICS

Business leaders have also thrown in their powerful voice, calling on Congress to put aside politics and reach an agreement to allow the debt ceiling to be raised.

"It is an imperative that the debt ceiling be fixed and it's an imperative that the United States shows fiscal discipline," said JPMorgan Chase chief executive Jamie Dimon.

"No one, no one can tell me with certainty that a default wouldn't cause catastrophe and therefore it's irresponsible to take that chance," he told reporters.