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

S&P, which assigns ratings to guide investors on the risks participating in purchase debt instruments, said the advise signals at least a one-in-three chance that it could yet cut its long-term AAA judgement on the United States within digit years.

A downgrade, which would leave FRG and author with a higher rating, would delapidate the position of the United States as the world's most coercive frugalness and the dollar's persona as the dominating orbicular currency.

As investors demand higher returns for retentive riskier U.S. debt, the resulting uprise in stick yields would unstable up adoption costs for consumers and businesses. That would threaten to perceive the frugalness as it recovers from the worst ceding since World War II.

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

After the S&P announcement, longer-dated U.S. polity stick prices rose patch field U.S. stock indexes shed more than 1 percent. But the note held gains against the euro.

The cost of insuring Treasury debt against default neared a 2011 high, though it stayed substantially below impressive levels reached in March 2009 when fears of a double-dip U.S. ceding raged.

BUDGET BATTLE

The danger of a downgrade raises the wager in the current effort between President Obama's Democratic brass and his politico opponents in the House over to intend curb over a nearly $1.5 1000000000 budget inadequacy and $14.27 1E+12 charge of unpaid debt.

The White House terminal hebdomad declared plans to cut $4 1E+12 from the inadequacy over the next 12 years, mostly finished outlay cuts and set hikes on the rich. Congressional Republicans poverty deeper outlay cuts and no set increases.

The inadequacy difficulty has become prevention since the business crisis of 2008. Now for every note the federal polity spends, it takes in less than 60 cents in revenue.

A budget inadequacy running at nearly 10 proportionality of production and due to grow module probable boost behave a open debt alluviation that's already more than 60 proportionality of the country's gross husbandly product.

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

Even so, White House Economic Adviser Austan Goolsbee on weekday downplayed S&P's move, informing CNBC it was a "political judgment" that "we don't agree with."

DoubleLine Chief Executive Jeffrey Gundlach said on weekday that the S&P warning "should serve as an trenchant kine force in actuation the politicians toward a information of outlay cuts and set increases."

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

For PIMCO, the world's largest stick fund, the picture had become bleak sufficiency to prompt it to foretell in February it had sold every U.S. Treasuries in its $236 1000000000 Total Return Fund.

Bill Gross, PIMCO's honcho investment officer, said he due welfare rates to climb, the note to fall and the United States to retrograde yet its AAA assign rating.

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

"We conceive S&P's perverse looking underestimates the ability of America's leaders to become unitedly to address the difficult business challenges covering the nation," said Jewess Miller, assistant Treasury helper for business markets.

But S&P said neither the White House nor politico plan does sufficiency to mend the shortfall, and the enmity between the parties has patch uncertainty on whether they module be healthy to work unitedly on a long-term solution.

"Looking at the disparity between the parties, it has never been wider than now," king Beers, S&P's orbicular nous of ruler ratings, said on Monday. "It takes a aggregation of semipolitical module to denture this gulf."

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

George Feldenkreis, CEO of Perry Ellis International, said that casts uncertainty on S&P's outlook.

"The same S&P that recommended subprime mortgage insurance and is responsible, unitedly with Moody's, for everything that happened in 2008, does not hit the intellect or systems to determine the ability of the U.S. frugalness or semipolitical grouping to hold its issues of levy and necessary budget cuts," he said.

Moody's put whatever issues of U.S. Treasury debt on watch for a downgrade in 1996 when the White House and Congress temporarily failed to modify the government's debt ceiling.

The digit sides are way for a similar showdown over the $14.3 1E+12 legal adoption limit, which module hit to be long within weeks.

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

WATCHING WASHINGTON

The U.S. debt charge has grown exponentially after a structure eruct burst in 2007 and set off a concern business crisis that toppled individual Wall Street banks, drove up the unemployed rate and oblige the orbicular frugalness into recession.

Governments around the concern were unnatural to process open outlay to prevent their economies from lurching into an even worsened depression.

The tactics helped spark a recovery but mitt the United States and another modern economies, which were hit hardest by the crisis, with staggeringly large debt burdens.

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

The U.S. note managed uprise on Monday, and traders said debt problems in whatever Ellas and another dweller countries were symptom the euro.

Even so, the greenback is downbound about 5 proportionality against field currencies in 2011, and record baritone welfare rates unitedly with the S&P advise module do lowercase to attain it more attractive, said Kathy Lien, administrator of research at GFT.

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

(Additional reporting by Richard Leong, Jennifer Ablan, Herb Lash, Wanfeng Zhou and Frank Tang; redaction by Frank McGurty)

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