The US President Barack Obama and top Republicans are facing increasing pressure to strike a deal on deficit-reduction.

US stock markets closed down amid growing concerns that the country's debt-ceiling will not be increased by 2 August, which could potentially force a default.

Earlier ratings agency Moody's warned that it might strip the US of its gold-plated credit rating in coming weeks if the $14.3 trillion limit on America's borrowing was not raised.

China – the US's biggest foreign creditor with more than $1 trillion in Treasury debt as of March - also urged Washington to adopt responsible policies to protect investor interests.

Markets have reacted skittishly after little sign of progress came from another day of talks between Mr Obama and congressional leaders.

The president yesterday clashed with Republicans during an acrimonious two-hour session that produced no progress toward a deal, and a leading Republican said Mr Obama walked out of the meeting.

Mr Obama said that it was now 'decision time' for Republicans and not the time to play games.

He said he would not sign a short-term fix on the issue and demanded the 'largest deal possible' on reducing the country's debt.

US Treasury Secretary Timothy Geithner told reporters that despite his office's best efforts it was impossible to find more time for Congress to solve the problem.

The US Treasury is understood to be making contingency plans in case a deal is not reached.

Mr Geithner said the eyes of the country, and of the world, was now on US politicians as they tried to find an adequate compromise.

The dispute between the two sides is based on the Democrats' wish to protect certain social spending while ending tax cuts for high earners.

The Republicans, on the other hand, want to dramatically cut government spending but are opposed to raising taxes.