The US risks default if Congress does not authorise more borrowing by August. A downgrade would increase borrowing costs, slowing the economic recovery. The US runs a $1.5 trillion (916.8 billion pounds) deficit and is already about $14.3 trillion in debt. The country reached its debt ceiling last month, but the US treasury department has begun taking extraordinary measures to avoid breaching the limit. Leaders of both parties agree to the need to trim the budget in the face of massive budget overruns, but Republicans have refused to allow tax increases, while Democrats have vowed to protect costly social programmes.

The White House argues the United States would face "catastrophic" consequences if Congress does not raise the cap on total US government borrowing by 2 August. Republicans and Democrats have engaged in a flurry of negotiations led by Vice-President Joseph Biden, but on Thursday no solution seemed imminent. And US President Barack Obama, who has called for Congress to raise the debt limit without conditions, has held meetings with congressional leaders of both parties.

In a statement on Thursday, Moody's warned that if Congress does not act to increase borrowing authority in the coming weeks, it could downgrade the AAA rating on US government debt "due to the very small but rising risk of a short-lived default". Such a move would increase borrowing costs, hindering the already struggling economic recovery.

"This E. coli is a new strain of bacteria that is highly infectious and toxic," said the scientists at the Beijing Genomics Institute in Shenzhen city in southern China. They said in a press release on Thursday the bacterium was closely related to another E. coli strain, called EAEC 55989, which was previously isolated in central Africa and known to cause serious diarrhoea.

Authorities are still hunting for the source of the new bacteria, which is believed to have contaminated raw vegetables. The E.coli outbreak has so far killed at least 17 people and made more than 1,500 others ill in eight European countries. University Medical Centre Hamburg-Eppendorf, one of the largest hospitals in Hamburg, treated many of the infected patients from north Germany and found they did not respond to some of the antibiotics used, the Chinese scientists said.

"The analysis further showed that this deadly bacterium carries several antibiotic resistant genes, including resistance to aminoglycoside, macrolides and Beta-lactam antibiotics: all of which makes antibiotic treatment extremely difficult," the scientists said. This new strain of also bore the hallmarks of other E. coli strains that are known to cause symptoms such as bloody diarrhoea, or hemorrhagic colitis, and hemolytic-uremic syndrome, which affects the kidneys.

Health experts are recommending strict hygiene measures such as hand washing and thorough cleaning and cooking of food.

According to the CIA report, ongoing street protests in crisis-hit Greece could turn into escalated violence and a rebellion and the Greek government could lose control, said Bild. The newspaper said the CIA report talks of a possible military coup if the situation becomes more serious and uncontrolled.

Greece is under immense pressure owing to public debt that has swollen to 340 billion euros. The EU, IMF and European Central Bank are pressing Greece to step up a privatization program and get all political parties to approve more austerity and reform measures that have sparked violent protests, but emergency talks called by the president on Friday failed to make any headway, AFP reported.

Opposition parties have mostly refused to support the government in its quest to cut spending by trimming an overblown civil service and the sweeping privatization drive announced this week has attracted even stronger protests. Meanwhile, the Dutch finance minister said his country, Germany, Finland and other EU members won't give Greece any more bailout money, if the debt-laden country fails to adopt further austerity measures.

The labour department will tell us on Friday whether the jobs situation improved in May, but there has been no sign of a surge in hiring. Nor in wages. Average hourly earnings of production and non-supervisory employees - who make up 80 per cent of non-government workers - dropped to $8.76 in April. Adjusted for inflation, that's lower than they were in the depths of the recession.

Meanwhile, housing prices continue to fall. They are now 33 per cent below their 2006 peak. That is a bigger drop than recorded in the Great Depression. Homes are the largest single asset of the American middle class, so as housing prices drop many Americans feel poorer. All of this is contributing to a general gloominess. Not surprisingly, consumer confidence is also down.

The recovery has stalled. It is unlikely that America will find itself back in recession but the possibility of a double dip cannot be dismissed. The problem is not on the supply side of the ledger. Corporate profits are still healthy. Big companies continue to sit on a cash hoard. Large and middle-sized companies can easily borrow more, at low rates. The problem is on the demand side. American consumers, who constitute 70 per cent of the total economy, cannot and will not buy enough to get it moving.

They justifiably worry that they will not be able to pay their bills, or afford to send their children to college, or to retire. Banks, with equal justification, are reluctant to lend to them. But as long as consumers hold back, companies remain reluctant to hire new workers or raise the wages of current ones, feeding the vicious cycle.

Washington's paralysis in the face of a stalled recovery is bad news - not just for average Americans but for the world. Ironically, it also worsens America's future budget crisis because it postpones the day when the debt begins to shrink as a proportion of GDP. Yet as the 2012 campaign season looms, the prospects for sensible policy seem to decrease by the day.

The images of children killed in a government crackdown on protests are circulating widely among Syrians on YouTube and Al-Jazeera, Facebook and opposition websites. And they are stoking even more fury against a regime the opposition says has lost all legitimacy.

Syria's government tried to blunt the anger with promises Wednesday to investigate the killing of 13-year-old Hamza al-Khatib, whose tortured and mutilated body turned him into a symbol of the Syrian uprising. But protesters deride that and other government concessions, including an amnesty that freed political prisoners on Wednesday and a committee to prepare for national dialogue, as nothing more than a ploy to buy time for President Basher Assad. They say at least 25 children are among more than 1,000 dead, with government crackdowns that increase the toll almost daily.

The deaths of two girls - a 12-year-old killed Saturday when her school bus came under fire, and an 11-year-old shot to death Tuesday while her town was being shelled - appeared certain to inflame tensions. Already, a Syrian opposition page refers to the older girl, Hajar Tayseer al-Khatib, as "the flower of Syria's martyrs."

Military operations in southern and central Syria killed at least 33 people Tuesday and Wednesday, even as the government released hundreds of political prisoners. The government claims the revolt is the work of Islamic extremists and armed gangs.

"We need to find real yield and real returns on these assets. You see bad data, you see Treasurys rally, you see all bonds and all fixed-income rally and then the people who are betting against the US economy start getting bearish on stocks. That's a huge mistake." Stocks extended losses after the manufacturing sector fell below expectations in May and the private sector added only 38,000 jobs during the month.

"Interest rates are amazingly low and that, thanks to Ben Bernanke, is driving everything," Yastrow said. "We're on the verge of a great, great depression. The [Federal Reserve] knows it."

Russia banned fresh imports from Spain and Germany on Monday, warning that the sanction could soon cover all EU nations if there was still no explanation on the source of the disease and how it is being spread. Researchers are still not able to pinpoint the cause of the outbreak that has hit Germany and other European nations, leaving some 1,500 people infected.

No fatalities or infections have yet been reported in Russia.

The letter will give Boehner an important talking point as he and his fellow House Republicans meet with President Barack Obama at 10 am to discuss the debt limit and other fiscal issues. "An increase in the national debt limit that is not accompanied by significant spending cuts and budget reforms to address our government's spending addiction will harm private-sector job creation in America," the letter said.

Signatories include Nobel laureate Robert Mundell of Columbia University and economists from schools like New York University and Georgetown University, as well as conservative think tanks like the American Enterprise Institute. The Treasury Department has warned that the country could face a default that could push it back into recession and roil markets across the globe if it does not raise the $14.3 trillion debt limit by August 2.

The Treasury has been tapping federal employee pensions and other funds to pay the nation's bills since it reached the current debt limit on May 16. Democrats say they will not consider cuts to popular health benefits until Republicans consider tax increases.

The S&P 500 slipped 30.65 points, or 2.28 percent to end at 1,314.55.

The Nasdaq fell 66.11 points, or 2.33 percent to finish at 2,769.19.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, surged 18.45 percent, to end at 18.30.

The Dow and S&P have seen the biggest drops since August 11, 2010 and are now on pace for a fifth straight week of losses. The Nasdaq saw its worst first day of the month since October 2009. All 10 key S&P 500 sectors dropped, led by financials, materials and industrials. In addition to the increased risk of restructuring, the agency cited "highly uncertain" growth prospects and missed targets in budget reforms.

In Europe, stocks closed lower amid renewed worries over Greece's debt troubles. Moody's Investors Service downgraded Greece again and said it sees "at least even" chance of a default.

"US house prices have fallen by more than 5 percent year on year, pending home sales have collapsed and existing home sales disappointed, the trend of improving jobless claims has arrested, first quarter GDP wasn't revised upwards by the 0.4 percent forecast, durables goods orders shrank, manufacturing surveys from Philadelphia Fed, Richmond Fed and Chicago Fed were all very disappointing. And that's just in the last week and a bit," said Riddell.

Pointing to the dramatic turnaround in the Citigroup "Economic Surprise Index" for the United States, Riddell said the tumble in a matter of months to negative from positive is almost as bad as the situation before the collapse of Lehman Brothers in 2008. "The correlation between the economic surprise index and Treasury yields is very close, so the lesson is that whatever your long term macro views are regarding hyper inflation vs deflation or the risk of the US defaulting, the reality is that if you want to have a view about government bond prices, the best thing you can do is look at the economic data to see what's actually going on," said Riddell.

"And right now, the economic data is suggesting that however measly you may think a 3 percent yield is on a 10-year Treasury, the yield should probably be a fair bit lower given what's going on in the US economy," said Riddell. "You've also got to wonder at what point the markets for risky assets start noticing, too."

"QE3 anybody?" asks Riddell.

The scale of the buying of UK Government debt was revealed in figures published on Wednesday by the Bank of England, which show the increased dependency of the gilt market purchases by the country's major banks. Simon Ward, chief economist at Henderson Global Investors, said THE ACTIONS OF THE BANKS WAS IN EFFECT DELIVERING A SECOND ROUND OF QUANTITATIVE EASING FOR THE ECONOMY.

"The government has been able to continue to fund the large budget deficit at low interest rates in recent months because banks and building societies have stepped up gilt purchases. For the moment, banks are effectively delivering the QE2 stimulus sought by MPC [Monetary Policy Committee] arch-dove Adam Posen," said Mr Ward.

Mr Posen has made frequent calls for the UK to embark on a new round of stimulus for the economy and said last month that the injection of 50 billion pounds would help the recovery.

"Downgrades. QE3 (a third round of quantitative easing) is coming," said Maughn. "The bond markets are all smarter than us, and that's exactly what the bond markets are telling me."

"What's interesting in the bond markets over the last couple of sessions is, you've seen human traders trying to step in and call this turn in the market the same way that equities have done... and they have just been mowed down by the quant funds which are all about leverage, all about momentum and are betting on bond prices going up," added Maughn. Once again, the United States will step up as the marginal buyer of bonds, said Maughn.

"One more big injection of cash into the bond market should take you through at least the summer season into the beginning of the fourth quarter. That cash injection will have the normal inflationary knock-on impact, driving back up commodities, supporting industrial stocks, dragging the financials up with them... I think it's all about the monetary injection trade," Maughn told CNBC.

The mission was given an initial 90 days, which would have run out on 27 June. Aside from Nato members, the talks at alliance headquarters included ambassadors from the five non-Nato countries participating in the Libya campaign; Jordan, Qatar, Sweden, the United Arab Emirates and Morocco.

The decision was practical in part; to accommodate the military planners of the contributing forces. But correspondents say it also aims to send a message to Libyans who have for the past three months been trying to topple Colonel Muammar Gaddafi after more than four decades of autocratic rule. "Nato, our partners, the whole international community, stand with you," said Mr Fogh Rasmussen. "We stand united to make sure that you can shape your own future. And that day is getting closer."

Critics of the Nato mission say it has reached a stalemate. Some of those who went along with the original vote at the UN Security Council - notably Russia - are alarmed that a mission designed to protect civilians from forces loyal to Colonel Gaddafi has drifted towards deposing his regime altogether.

"There is definitely going to be another financial crisis around the corner because we haven't solved any of the things that caused the previous crisis," Mobius said at the Foreign Correspondents' Club of Japan in Tokyo today in response to a question about price swings. "Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes."

The total value of derivatives in the world exceeds total global gross domestic product by a factor of 10, said Mobius, who oversees more than $50 billion. With that volume of bets in different directions, volatility and equity market crises will occur, he said.

The global financial crisis three years ago was caused in part by the proliferation of derivative products tied to US home loans that ceased performing, triggering hundreds of billions of dollars in writedowns and leading to the collapse of Lehman Brothers Holdings Inc in September 2008. The MSCI AC World Index of developed and emerging market stocks tumbled 46 percent between Lehman's downfall and the market bottom on March 9, 2009.

"With every crisis comes great opportunity," said Mobius. When markets are crashing, "that's when we're going to be able to invest and do a good job," he said. The freezing of global credit markets caused governments from Washington to Beijing to London to pump more than $3 trillion into the financial system to shore up the global economy. The MSCI AC World gauge surged 99 percent from its March 2009 low through May 27.

The index's reading of 125.41 for the quarter was the lowest since house prices began falling in the summer of 2006. The report "is marked by the confirmation of a double-dip in home prices across much of the nation," said David Blitzer, chairman of the committee that puts together the report. "Home prices continue on their downward spiral with no relief in sight." While the housing market has been a well-known Achilles heel for the recovery, yesterday also saw evidence that the country's manufacturing sector - a robust, albeit small, part of the economy - is slowing.

A reading from the Institute for Supply Management's index that measures the state of manufacturing around Chicago showed a decline to 56.6 last month (May) from 67.5 in April. There were further signs that high food and gas prices are denting the confidence of consumers, whose spending is central to the economy's fortunes. Consumer confidence reached a six-month low in May, according to an index from the Conference Board, as the reading dropped to 60.8 from 66 in April.

The latest slew of readings adds more pressure on the US jobs market to continue its recovery and shore up Americans' confidence. The monthly jobs report for May will be released on Friday. "Weakness in manufacturing also points to a risk of a weaker-than-expected payroll report on Friday and reinforces the general sense the economy is losing steam," said Chris Low, an economist at FTN Financial.