Markets jittery as Obama and Congress duel over taxes and cuts

SHARES fell after congressional leaders failed to agree on a deal to raise the US debt limit and avoid default.

They hoped to reach a compromise late on Sunday, but those talks stalled. President Barack Obama wants to raise revenues by letting tax cuts for the wealthy expire. Republicans have pushed for more spending cuts and have rejected higher taxes.

If an agreement is not reached by 2 August, the US will not have enough cash to pay all its bills. That could have a catastrophic impact on financial markets. The US would probably lose its triple-A credit rating. Interest rates would rise and stocks could fall the way they did during the 2008 crisis, analysts say.

Most traders expect a last-minute deal, but there are still uncertainties about taxes or changes to government spending that could affect corporate profits. Investors also worry that the government may only come up with a short-term fix that could still trigger a credit rating downgrade.

European stocks were little changed yesterday, even after Moody's downgraded Greece's credit ratings again.