World markets fall on US default fears over debt deadlock

London’s FTSE 100 index of leading shares was down 4.88 points – or 0.08pc – at 5930.16, with Germany’s DAX down 0.05pc and France’s CAC slipping 0.29pc.

In Asia Tokyo’s Nikkei 225 lost 0.81pc, Hong Kong’s Hang Seng slid 0.68pc, Seoul’s Kospi dropped 0.96pc and Australia’s ASX fell 1.6pc. China’s Shanghai Composite slipped by 2.96pc and the Shenzhen Composite was down 3.75pc, with Saturday’s rail crash also having an impact.

US Treasury Secretary Tim Geithner warned yesterday that America risks a major backlash from financial markets unless the outline of a deal to prevent a government default is agreed in the next 24 hours.

“The only thing you can be assured of over the coming hours and days is volatility as the political posturing continues in the US,” said Ben Potter, market strategist for IG Markets, in a report.

Weeks of talks between Democrats and Republicans to raise the country’s $14.3 trillion (£8.8 trillion) debt ceiling and prevent default have so far produced nothing, and negotiations between President Obama and John Boehner, the top Republican in Congress, disintegrated on Friday.

The President now faces a scramble to get a deal agreed and voted through by Congress before the August 2 deadline, when the US will face its first ever default. A dip in worldwide markets shows that there are concerns this could not be possible, or anxiety over possible tax hikes or spending cuts.

Futures contracts indicate that Wall Street will also slide, with the Dow Jones, the broader S&P 500 and technology rich Nasdaq forecast to open down around 1pc.

The US is facing increasing pressure to reach a resolution, as the impact of a US default would be felt around the world. Business secretary Vince Cable told the BBC’s Andrew Marr on Sunday that it could have repercussions for the UK.

“The irony of the situation at the moment, with markets opening tomorrow morning, is that the biggest threat to the world financial system comes from a few right-wing nutters in the American Congress rather than the eurozone,” he said.