Politicians heading a US congressional "super-committee" announced last night that they had failed to reach a deal to tackle the massive US deficit, adding to jitters on world markets about Europe's debt crisis.
"We are deeply disappointed that we have been unable to come to a bi-partisan deficit reduction agreement," Democratic Senator Patty Murray and Republican Representative Jeb Hensarling said in a joint statement.
The announcement confirmed widespread expectations that the 12-member panel would fail in its mission to cut US deficits by $1.2 trillion over ten years due to disputes over tax hikes for the rich and cuts to social spending.
President Barack Obama blamed Republicans for the breakdown and vowed to veto any attempt to water down automatic budget cuts that would kick in by early 2013.
Under the August law that set up the committee, the deadlock calls for draconian automatic cuts to domestic programmes and the military from January 2013, although politicians have plenty of time to repeal those cutbacks.
"Despite our inability to bridge the committee's significant differences, we end this process united in our belief that the nation's fiscal crisis must be addressed and that we cannot leave it for the next generation to solve," Mr Murray and Mr Hensarling said.
Mr Obama, seeking to calm financial markets, said the US was not facing an imminent threat of default and that "one way or another" there would be at least $2.2 trillion in deficit cuts over ten years.
Credit rating agency Standard & Poor's maintained its AA+ credit rating for the US despite news of the committee's failure. S&P said the group's inability to agree on measures was consistent with its 5 August decision to lower its US debt rating to AA+.
"However, we expect the caps on discretionary spending as laid out in the Budget Control Act of 2011 to remain in force. If these limits are eased, downward pressure on the ratings could build," S&P warned.