Obama, lawmakers face fresh doubts on debt deal

President Barack Obama and top Republicans face growing pressure Thursday to surmount acrimonious divisions over how to avoid a U.S. debt default as an Aug. 2 deadline looms for raising the national debt ceiling.

China, the U.S.'s biggest foreign creditor with more than $1 trillion in Treasury debt as of March, called on the U.S. government on Thursday to adopt responsible policies to protect investor interests.

The Foreign Ministry comments followed a warning by Moody's Investors Service that it might strip the United States of its gold-plated credit rating in coming weeks if the $14.3 trillion limit on America's borrowing was not raised.

The prospect of a cut in the U.S.'s AAA credit rating hit stocks prices globally, and weakened the dollar. Gold prices pushed to a record high as investors saw the precious metal as a safer place for their cash.

Koen De Leus, an economist at KBC Securities in Belgium, said the default risk is political so a last minute U.S. deal would be struck, a view shared by many in financial markets.

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"But it does create additional nervousness on the top of all other issues like the uncertainty about U.S. growth in the second half of 2011, inflation problems in emerging countries and the European debt problem."

The U.S. talks on Wednesday lasted nearly two hours and were the stormiest yet. They ended with Obama telling Republicans that "enough's enough".

The session was marked by partisan recriminations and laid bare stark differences between the Democratic president and his Republican rivals over taxes and deficits.

The outcome of the talks don't have just fiscal implications. They could also have big implications for the 2012 presidential campaign, where Obama is seeking re-election.

An agreement must be forged to raise America's debt limit by Aug. 2 or the government will run out of money to pay its bills and default on some obligations.

Failure to act could send shockwaves through the global financial system, Federal Reserve Chairman Ben Bernanke said on Wednesday. Obama has warned that the U.S. economy could be pushed back into recession.

Those prospects are worrying investors, including the Chinese government, which fears even a small default could destabilise the global economy and sour political relations.

"We hope that the U.S. government adopts responsible policies and measures to guarantee the interests of investors," China Foreign Ministry spokesman Hong Lei said at a regular briefing in Beijing. He did not elaborate.