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NEW YORK (Reuters) – Standard & Poor's maltreated a perverse looking on the top-notch credit judgement of the United States on Monday, jacking up the push on the Obama brass and legislature to slash the yawning federal budget deficit.

S&P, which assigns ratings to pass investors on the risks participating in purchase debt instruments, said the advise signals at least a one-in-three quantity that it could revilement its long-term judgement on the United States within two years.

A downgrade would boost counteract the status of the United States as the world's scheme powerhouse. It would also push up mortgage rates and tighten credit conditions across the economy, mayhap derailing a U.S. feat from the poorest ceding since World War II.

"This newborn warning highlights the requirement for the U.S. to verify better curb of its business destiny if it is to avoid higher adoption costs and maintain its bicentric role at the core of the orbicular economy," said Mohamed El-Erian, honcho chief at PIMCO, which oversees $1.2 1E+12 in assets.

Longer-dated U.S. polity stick prices fell, while field U.S. impact indexes drop more than 1 percent. But the note held gains against the euro.

The outlay of insuring U.S. Treasury debt against choice neared a 2011 high, though it remained substantially beneath lofty levels reached in March 2009 when fears of a double-dip U.S. ceding flared.

The advise module push the Obama brass and legislature to impact harder to come up with an aggressive long-term organisation to revilement a nearly $1.5 1E+12 federal budget deficit, equal to most 9.8 proportionality of output.

"It's a wake up call that we requirement to do something," said Axel Merk, chair and portfolio trainer of Merk Hard Currency Fund in Palo Alto, California. S&P is "absolutely correct that this is something serious that needs to be addressed."

TROUBLE FOR TREASURIES

Outstanding open U.S. debt has swelled to more than 60 proportionality of amount production in the aftermath of the 2007-2009 business crisis. With a budget inadequacy streaming at nearly 10 proportionality of production and due to grow, that amount is due to behave further.

"Because the U.S. has, qualifying to its AAA peers, what we consider to be rattling large budget deficits and rising polity indebtedness, and the line to addressing these is not country to us, we impact revised our looking on the long-term judgement to perverse from stable," S&P said in a release.

The picture had embellish cold sufficiency to stimulate PIMCO, the world's maximal stick fund, to foretell in Feb it had oversubscribed every U.S. Treasuries in its $236 1000000000 Total Return Fund.

Bill Gross, PIMCO's honcho assets officer, said he due interest rates to climb, the note to start and the United States to lose yet its AAA credit rating.

The Obama brass terminal hebdomad announced plans to trim $4 1E+12 from the budget inadequacy over the next 12 years, mostly finished spending cuts and ordered hikes on the rich.

A crowning brass official on weekday reiterated U.S. dedication to behave and said S&P underestimated that resolve.

"We conceive S&P's perverse looking underestimates the ability of America's body to come unitedly to address the arduous business challenges covering the nation," said Mary Miller, assistant Treasury secretary for business markets.

"I don't think that we should attain likewise such out of that," additional crowning White House economist Austan Goolsbee said on MSNBC, referring to the S&P downgrade.

"What the S&P is doing is making a political sentiment and it is one that we don't concord with," he said on CNBC.

The White House and Congressional Republicans impact clashed over their individual plans to revilement the budget, with the latter actuation for modify deeper cuts and no ordered increases.

But S&P said neither organisation does sufficiency to fix the shortfall, and the enmity has cast uncertainty on whether they module be healthy to impact unitedly on a long-term solution.

"Looking at the disparity between the parties, it has never been wider than now," Beers said. "It takes a aggregation of political module to denture this gulf."

Last week, a U.S. congressional inform terminal hebdomad blamed ratings companies such as S&P and Moody's Corp for triggering the business crisis when they revilement the increased ratings they had applied to Byzantine mortgage-backed securities.

WATCHING WASHINGTON

The U.S. debt charge has grown exponentially after a housing bubble burst in 2007 and ordered off a concern business crisis that toppled several Wall Street banks, crowd up the unemployed evaluate and thrust the orbicular frugalness into recession.

Governments around the concern were unnatural to increase open spending to preclude their economies from lurching into an modify worse depression.

The tactics helped flash a feat but left the U.S. and other advanced economies, which were impact hardest by the crisis, with staggeringly large debt burdens.

Moody's Investors Service, which reaffirmed the U.S. crowning credit judgement on Monday, said the fact that the issue was existence condemned earnestly by lawmakers was "credit positive, although it relic doubtful what sort of budget module actually be adopted."

David Joy, honcho contriver at river Management, which oversees $347 1000000000 in assets, said "hopefully, today's ratings state module underscore the solicitation of inadequacy reduction among the members of Congress."

The U.S. note managed to hold gains against the euro on Monday, and traders said debt problems in whatever European countries were disposition whatever hold to the U.S. currency.

Even so, the greenback is down most 5 proportionality against field currencies in 2011, and record low interest rates unitedly with the S&P advise module do lowercase to attain it more attractive, said Kathy Lien, director of investigate at GFT.

"Even though I don't think an actualised downgrade would occur, in this rattling huffy or undefendable time for the U.S. dollar, it's sufficiency to spook investors from holding or purchase U.S. dollars," she said.

(Editing by Frank McGurty)

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