Debt Double Whammy Hits World Markets

World markets have plunged following a shock downgrade in the outlook for US government debt and mounting concerns over Greece.

Wall Street's Dow Jones Industrial Average fell 1.5% on opening, after ratings agency Standard & Poor's (S&P) served notice of concerns for sovereign debt in America - putting it on negative watch.

It kept the current high-grade AAA rating but said that there was a one in three chance of it being cut in the next two years.

The agency said that while the US economy was diverse and flexible, the nation's ballooning deficit could mean the government struggles to deal with its debt.

"It's the headline that gets people nervous," said Dave Kansas, the global markets editor of the Wall Street Journal, in an interview on Jeff Randall Live.

"The fact that someone will come out and say the triple A rating is at risk."

According to Mr Kansas, the S&P statement was being seen as a warning to the Obama administration and the Republican Party, who are clashing over how to cut the deficit.

"What S&P is saying is that if you guys don't get together before the election, we're going to be deeply concerned," he said.

He added that it would be a "huge shock" if the rating were to be cut, and would make borrowing more expensive at a critical time for national finances.

Sky's US correspondent Robert Nisbet reported that the US Treasury had responded to the debt outlook downgrade with a defiant statement.

"We believe S&P's negative outlook underestimates the ability of America's leaders to come together to address the difficult fiscal challenges facing the nation," it read.

The FTSE 100 dipped following the news from the US, on a day that had already seen it lose ground as investors fretted over whether Greece would default on its massive debt mountain.

The Greek government has denied any suggestion it will need to restructure its loans but the governor of the country's central bank fanned the flames of discontent by warning of a shrinking economy.

It led to a new record yield for Greek 10-year bonds while the FTSE 100 closed on Monday at 5870.08, dropping 2.1%.

It was a similar picture across Europe - with Germany's Dax losing 2.11% of its value.