S&P said there is at least a one-in-two chance it could cut its triple-A rating on Treasuries, placing the rating on credit watch.

Market players said that S&P's warning, just a day after Moody's made similar comments, was not a surprise.

Still, with less than three weeks before Aug. 2, when US debt is expected to hit its $14.3 trillion borrowing limit, concerns about the lack of a budget deal are making investors nervous.

Dow Jones reported on Thursday that the White House and Congressional leaders could agree to about $1.5 trillion in deficit cuts and might be able to agree to an additional $200 billion in reductions.

But some investors were disappointed that no such deal emerged after talks on Thursday ended without significant progress, said a fund manager at US asset management firm.

Ten-year bonds sagged 5.5/32 in price, pushing up their yield to 2.97 percent from 2.95 percent in late US trade.

This week's auctions of a total of $66 billion in government debt, including a $13 billion 30-year bond sale on Thursday, were successful.

But as the Federal Reserve terminated its asset purchase programme in June and is no longer absorbing a large amount of debt from primary dealers, follow-through buying was limited.

Copyright Reuters, 2011