HONG KONG: Asian markets mostly fell and the dollar faced heavy selling Thursday after Moody's warned it could downgrade the United States' top-class debt rating, raising fears of a default by Washington.
Moody's blamed lawmakers' failure to hammer out a deal that would allow President Barack Obama to raise the country's debt ceiling, in turn paving the way for it to meet its repayment obligations.
With trillions of dollars of US debt held by countries and corporations around the world, a US ratings downgrade would send global markets into a downward spiral.
Tokyo shed 0.27 percent, or 27.02 points, to end at 9,936.12, with exporters hurt by the yen's strength against the greenback, and Sydney closed 0.53 percent, or 24.1 points, off at 4,490.7.
Hong Kong fell 0.65 percent in the afternoon.
Seoul was flat, edging up 0.43 points to close at 2,130.07 but Shanghai gained 0.18 percent.
"The review of the US government's bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes," Moody's said.
Ratings agency Standard's & Poor's in April also downgraded its outlook for the US, citing the budget deadlock.
The action came as Obama and Democratic lawmakers and their Republican counterparts held a fourth straight day of talks to try to hammer out an agreement on a deficit-reduction budget.
Republicans are refusing to lift the country's $14.29 trillion debt ceiling without deep government spending cuts, and they reject Democrats' demand that tax increases must be part of any sweeping deficit reduction plan.
The prospect of a downgrade hammered the dollar, which has tumbled since the end of last week after poor jobs data and the ongoing eurozone debt crisis, while the yen surges due to its safe-haven status.
In afternoon trade the greenback fell to 78.93 yen in Tokyo morning trading from 78.98 in New York late Wednesday.
The euro, which tumbled this week due to fears over the European sovereign debt crisis, was given some respite.
The single unit firmed to $1.4195 from $1.4168 in New York and was flat at 111.74 yen from 111.76 yen.
The dollar was also lower after Federal Reserve chairman Ben Bernanke told legislators Wednesday that the central bank was "prepared to respond" if stimulus was needed to kickstart the ailing US economy.
"The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying the need for additional policy support," Bernanke said.
His comments signalled to some that he was keeping the door open for a third round of quantitative easing. The bank in June wound up its $600-billion "QE2" bond purchasing programme that aimed to boost the economy with easy liquidity.
Global markets have slumped this week as the eurozone debt woes continue, with fears of a default in Greece spreading to Italy and Spain.
Those concerns deepened after Fitch became the last of the three ratings agencies to downgrade Greece to junk status as European officials struggle to hammer out a bailout plan for the beleaguered country.
In Sydney Rupert Murdoch's News Corp was down 3.6 percent after abandoning its $14 billion bid for the 61 percent it does not own of British satellite television provider BSkyB.
He pulled out of the deal amid a phone hacking scandal at the firm's British newspapers that has seen the closure of the Sunday tabloid News of the World.
Uncertainty in global markets sent gold soaring because of its status as a safe haven. The precious metal opened at $1,587.40-$1,588.40 in Hong Kong after hitting a record high 1,587.97 in London.
New York's main contract, West Texas Intermediate for delivery in August, was down one cent to $98.04 a barrel in morning trade.
Brent North Sea crude for August delivery rose 14 cents to $118.92.
In other markets;
-- Taipei closed flat, edging down 6.71 points at 8,481.35.
HTC rose 6.78 percent to Tw$929.0 while Hon Hai was 1.53 percent lower at Tw$90.3.
-- Manila rose 0.44 percent, or 19.55 points, to 4,423.55.
Metropolitan Bank & Trust jumped 3.6 percent to 76.95 pesos and Philex Mining put on 3.0 percent to 26.15 pesos while Manila Electric added 0.7 percent to 270 pesos.
-- Wellington fell 0.43 percent, or 14.85 points, to 3,409.55.
The loss came as economic growth data, which beat forecasts made in the wake of February's devastating earthquake, sent the local dollar to a record high US$0.8490, its strongest since the currency was floated 26 years ago.
Outdoor clothing retailer Kathmandu Holdings dropped 3.1 percent to NZ$2.21 and Fletcher Building was 1.1 percent lower at NZ$8.13.
Copyright AFP (Agence France-Presse), 2011
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