S&P strips US of AAA-rating for first time

Credit rating agency Standard & Poor's has downgraded the US’ prized AAA-rating for the first time ever.

S&P cut the long-term US rating by one notch to AA+ with a negative outlook on concerns about the government’s plan to deal with its debt.

The agency said the deficit reduction plan passed by Congress on Tuesday did not go far enough.

In a statement, S&P said: “We have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilises the government's debt dynamics anytime soon.”

The US Federal Reserve quickly moved to reassure banks after the announcement, saying it will continue to accept treasuries as collateral as usual and that banks will suffer no capital penalty for holding US government debt, the FT reports.

US markets took a battering last week as investors fretted over the debt situation and a string of weak numbers from leading economic indicators.

US jobs figures released on Friday was better than expected, but followed very weak data from the manufacturing and services sectors.

This latest blow to the world's largest economy is expected to send markets into freefall when trading opens on Monday.