22/11/2011 - 06:55

US stocks sink on debt deal failure

22/11/2011 - 06:55

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US stocks sink on debt deal failure

US equity markets have been rattled by news that Congress has failed to reach a deal to cut the country's massive budget deficit and to extend stimulus measures into next year.

Lawmakers heading a US congressional "supercommittee" said they had failed to reach a deal to rein in galloping deficits, adding to world jitters about Europe's debt crisis.

"We are deeply disappointed that we have been unable to come to a bipartisan deficit reduction agreement," Democratic Senator Patty Murray and Republican Representative Jeb Hensarling said in a joint statement on Monday.

In early trade on Monday the Dow Jones Industrial Average fell 147.44 points, or 1.25 per cent, to reach 11,648.72 points.

The broad-based S&P 500 index was down 16.88 points, or 1.39 per cent, to 1,198.77.

The tech-heavy Nasdaq Composite fell 35.34 points, or 1.37 per cent, to 2,537.16.

Market concerns appeared to be as much about the fate of short-term stimulus measures - also part of the deal proposal - as any hit to the US credit standing.

The US cost of borrowing was little changed in early bond trading.

"Market focus will now shift to the fate of the expiring payroll tax cuts and unemployment benefits," said analysts with Barclays Capital.

While the failure of the so-called "supercommittee" heightened fears that political deadlock could push the United States toward a European-style debt crisis, according to Barclay's the US is not there yet.

"The risk of a near-term ratings downgrade by Moody's is low, in our view, unless gimmicks are used to meet a substantial portion of the deficit target, resulting in fiscal slippage," the firm said.

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