Mr Schauble denied reports that Berlin was ready to empower the fund to purchase Spanish and Italian bonds pre-emptively on the open market, a move seen by experts as vital to halt dangerous contagion to the larger economies. The market's verdict on EU foot-dragging was instant and brutal. Yields on 10-year Spanish bonds smashed through the 6 per cent barrier for the first time since 1997, made worse by warnings from the Castilla-La Mancha region that its deficit had become "extremely serious".

Italian yields jumped 44 points 5.7 per cent, a level that starts to threaten the sustainability of the country's finances. Markit's iTraxx SovX Western Europe, Europe's sovereign stress gauge, saw the biggest one-day rise ever. "Contagion was the word on everybody's lips," said Gavan Nolan, Markit's credit chief.

EU leaders seem unable to keep pace with the fast-moving events. Eurogroup finance ministers focused yesterday on details of "burden-sharing" for banks that lent to Greece, no longer the most urgent matter. A summit of top EU officials ended with no hint of how the crisis could be contained.

In a bid to stop financial contagion engulfing Italy and Spain, officials promised to provide cheaper loans, longer maturities and a more flexible rescue fund to help Greece and other EU debtors. They declined to rule out the possibility of a selective default by Greece, a move officials said bolstered Germany's push to involve investors in easing Greece's debts despite the concerns of the European Central Bank.

European Union finance ministers meet later on Tuesday and are under the cosh to soothe market nerves ahead of Thursday's Italian bond auctions. Italy is aiming to raise 7.75 billion euros in the debt market, according to estimates from Barclays Capital.

"All we have right now are headlines about possibilities. I don't think what we're seeing now in the market is going to stop until we see action. If it's aggressive enough and large enough, then it could possibly do the trick," said Michael Feroli, chief US economist at JPMorgan in New York.

The Obama administration has significantly stepped up enforcement of anti-bribery laws in the last two years, winning big settlements from the likes of Daimler AG and BAE Systems Plc by focusing on bribes they paid to foreign officials to win lucrative contracts.

Bribes for business have represented the bulk of these anti-bribery cases brought by the Justice Department and the Securities and Exchange Commission. It is unclear whether US authorities would use scarce resources to probe News Corp over bribes allegedly paid to British police and other officials for information that became news scoops.

Employees of Murdoch's now-shuttered News of the World tabloid have been accused of hacking into personal voicemail and paying bribes. British authorities are investigating. Legal experts in the United States said News Corp could face scrutiny on this side of the Atlantic Ocean as US officials probe whether any of the allegations, if proven true, violate the US Foreign Corrupt Practices Act. That law makes it a crime for any company with US ties to bribe foreign officials to obtain or retain business.

Chinese reconnaissance satellites can now monitor targets for up to six hours a day, the World Security Institute, a Washington think-tank, has concluded in a new report. The People's Liberation Army, which could only manage three hours of daily coverage just 18 months ago, is now nearly on a par with the US military in its ability to monitor fixed targets, according to the findings.

"Starting from almost no live surveillance capability 10 years ago, today the PLA has likely equalled the US's ability to observe targets from space for some real-time operations," two of the institute's China researchers, Eric Hagt and Matthew Durnin, write in the Journal of Strategic Studies. China's rapidly growing military might has unnerved its neighbours, many of whom are US allies, while a series of disputes this year with Vietnam and the Philippines have added to the concerns.

China's military build-up has accelerated in recent years, as it has developed an anti-ship ballistic missile, tested a stealth fighter and is poised to launch its first aircraft carrier. The fast-growing network of reconnaissance satellites provides China with the vision to harness this hardware. Admiral Mike Mullen, America's top military official, said at the weekend in Beijing that it was clear that the PLA is focused on "access denial" - a term that describes a strategy of pushing the US out of the western Pacific.

Farmers with the money and equipment to irrigate are running wells dry in the unseasonably early and particularly brutal national drought that some say could rival the Dust Bowl days. "It's horrible so far," said Mike Newberry, a Georgia farmer who is trying grow cotton, corn and peanuts on a thousand acres. "There is no description for what we've been through since we started planting corn in March."

The pain has spread across 14 states, from Florida, where severe water restrictions are in place, to Arizona, where ranchers could be forced to sell off entire herds of cattle because they simply cannot feed them. In Texas, where the drought is the worst, virtually no part of the state has been untouched. City dwellers and ranchers have been tormented by excessive heat and high winds. In the Southwest, wildfires are chewing through millions of acres.

Last month, the United States Department of Agriculture designated all 254 counties in Texas natural disaster areas, qualifying them for varying levels of federal relief. More than 30 percent of the state's wheat fields might be lost, adding pressure to a crop in short supply globally. Even if weather patterns shift and relief-giving rain comes, losses will surely head past $3 billion in Texas alone, state agricultural officials said.

European stock markets fell heavily on Monday, especially Italy, where the market in Milan lost 4%. In New York the Dow Jones Industrial Average closed 1.2% lower. On Monday eurozone finance ministers, meeting to discuss a new aid plan for Greece, said they were ready to enhance "the flexibility and the scope" of a 400 billion-euro (353 billion pounds) rescue fund. "Ministers reaffirmed their absolute commitment to safeguard financial stability in the euro area," the group said in a statement after eight hours of talks.

"To this end, ministers stand ready to adopt further measures that will improve the euro area's systemic capacity to resist contagion risk, including enhancing the flexibility and the scope of the EFSF (European Financial Stability Facility), lengthening the maturities of the loans and lowering the interest rates, including through a collateral arrangement where appropriate. "Proposals to this effect will be presented to ministers shortly."

The facts of the case are astonishing in their scope. Thousands of private phone messages hacked, presumably by people affiliated with the Murdoch-owned News of the World newspaper, with the violated parties ranging from Prince William and actor Hugh Grant to murder victims and families of soldiers killed in Iraq and Afghanistan. The arrest of Andy Coulson, former press chief to Prime Minister David Cameron, for his role in the scandal during his tenure as the paper's editor.

The arrest (for the second time) of Clive Goodman, the paper's former royals editor. The shocking July 7 announcement that the paper would cease publication three days later, putting hundreds of employees out of work. Murdoch's bid to acquire full control of cable-news company BSkyB placed in jeopardy. Allegations of bribery, wiretapping, and other forms of lawbreaking - not to mention the charge that emails were deleted by the millions in order to thwart Scotland Yard's investigation.

All of this surrounding a man and a media empire with no serious rivals for political influence in Britain - especially, but not exclusively, among the conservative Tories who currently run the country. Almost every prime minister since the Harold Wilson era of the 1960s and '70s has paid obeisance to Murdoch and his unmatched power. When Murdoch threw his annual London summer party for the United Kingdom's political, journalistic, and social elite at the Orangery in Kensington Gardens on June 16, Prime Minister Cameron and his wife, Sam, were there, as were Labour leader Ed Miliband and assorted other cabinet ministers.

Murdoch and his global media empire have a lot to answer for. He has not merely encouraged the metastasis of cutthroat tabloid journalism on both sides of the Atlantic. But perhaps just as troubling, authorities in Britain may respond to popular outrage at the scandal by imposing the kind of regulations that cannot help but undermine a truly free press. The events of recent days are a watershed for Britain, for the United States, and for Rupert Murdoch. Tabloid journalism - and our tabloid culture - may never be the same.

This week a meta-analysis of seven studies involving a total of 6,250 subjects in the American Journal of Hypertension found no strong evidence that cutting salt intake reduces the risk for heart attacks, strokes or death in people with normal or high blood pressure. In May European researchers publishing in the Journal of the American Medical Association reported that the less sodium that study subjects excreted in their urine - an excellent measure of prior consumption - the greater their risk was of dying from heart disease. These findings call into question the common wisdom that excess salt is bad for you, but the evidence linking salt to heart disease has always been tenuous.

Fears over salt first surfaced more than a century ago. In 1904 French doctors reported that six of their subjects who had high blood pressure - a known risk factor for heart disease - were salt fiends. Worries escalated in the 1970s when Brookhaven National Laboratory's Lewis Dahl claimed that he had "unequivocal" evidence that salt causes hypertension: he induced high blood pressure in rats by feeding them the human equivalent of 500 grams of sodium a day. (Today the average American consumes 3.4 grams of sodium, or 8.5 grams of salt, a day.)

Dahl also discovered population trends that continue to be cited as strong evidence of a link between salt intake and high blood pressure. People living in countries with a high salt consumption - such as Japan - also tend to have high blood pressure and more strokes. But as a paper pointed out several years later in the American Journal of Hypertension, scientists had little luck finding such associations when they compared sodium intakes within populations, which suggested that genetics or other cultural factors might be the culprit. Nevertheless, in 1977 the US Senate's Select Committee on Nutrition and Human Needs released a report recommending that Americans cut their salt intake by 50 to 85 percent, based largely on Dahl's work.

The strong eruption - Etna's fifth since the beginning of the year - was shortlived, but left the airport closed overnight. Bemused Sicilians, meanwhile, were quick to blame the volcano after thousands noticed that their clocks were running 15 minutes fast. The fast forward time keeping has affected a wide spectrum of digital clocks and watches - from computers through to alarm clocks. It was spotted when large numbers of locals started turning up for work early, and a Facebook page was organised for those involved to compare notes.

As well as Etna's volcanic activity, users have so far blamed aliens, poltergeists, solar explosions and electrical disturbances caused by underwater cables. Fontanarossa airport was reopened at 7am local time after seven sweeping machines worked through the night to clear the runway of ash. The cause of the island-wide clock confusion remains unknown.

Etna is the highest active volcano in Europe at 3,295m (10,810ft). The last eruption was in May.

Geithner spoke in depth about the consequences of missing the early August deadline. Noting that the government writes about 80 million checks a month, he said everything from Medicaid payments to checks for US troops could be in jeopardy.

He said interest rates could rise the closer the country gets to August 2 without a deal and that if the debt ceiling is not increased by then, credit rating agencies could follow through on threats to downgrade the United States' sterling credit rating.

"If that happens, you're going to see catastrophic damage across the American economy and across the global economy," Geithner said. He said Congress has no choice but to act. "There is no credible way to give Congress more time," Geithner said on NBC's 'Meet the Press'. "They have to act by the 2nd."

It's against this background that US Federal Reserve Chairman Ben Bernanke will step before Congress for his semi-annual testimony on Wednesday. He will likely be barraged with questions about Friday's jobs report - a report so across-the-board disappointing that JPMorgan economist Michael Feroli called it "worse than Spinal Tap's 'Shark Sandwich.'"

The US economy created just 18,000 jobs in June, much less than the 90,000 economists had expected. A US retail sales report may offer a little bit of hope on Thursday if it shows Americans spent money left over from a recent retreat in gasoline prices on other items. "We're in a situation where the data is noisy and choppy," said Michael Hanson, a senior economist at Bank of America.

"For a central banker, you're now in risk management mode: 'We want to be ready to calm the markets in case we get more bad data, but we don't want to jump the gun, either.'" Bernanke has argued that the biggest factors affecting growth in the first half of the year are temporary in nature: supply disruptions due to the Japanese earthquake, inclement weather and a surge in oil prices earlier this year. He is expected to stick to that assessment.

One of those risks is Europe's escalating debt crisis. Contagion is already evident from the growing risk premia on debt issued by Spain and Italy, which some analysts view as a warning signal. Lower-rated euro zone government bonds have faced increased pressure since Moody's cut Portugal's credit rating to junk last week. "There is not expected to be much of a resolution, so all together there is a lot of asymmetric risk out there," said Mark McCormick, currency strategist at Brown Brothers Harriman.

China raised interest rates for the third time this year on Wednesday as taming inflation remains a top priority even as the pace of growth in its vast economy slows. "Unlike in Japan and the US, where we believe growth has slowed for temporary reasons, policy tightening in the euro area and China seems likely to yield a more persistent slowing in growth," Barclays' Maki wrote in a note to clients.

European Central Bank President Jean-Claude Trichet will attend the meeting along with Jean-Claude Juncker, chairman of the region's finance ministers, European Commission President Jose Manuel Barroso and Olli Rehn, the economic and monetary affairs commissioner, three official sources told Reuters. Van Rompuy's spokesman Dirk De Backer said: "It's a coordination, not a crisis meeting." He added that Italy would not be on the agenda and declined to say what would be discussed.

However, two official sources told Reuters that the situation in Italy would be discussed. The talks were organized after a sharp sell-off in Italian assets on Friday, which has increased fears that Italy, with the highest sovereign debt ratio relative to its economy in the euro zone after Greece, could be next to suffer in the crisis. A second international bailout of Greece will also be discussed, the sources said.

Senior euro zone officials worry that progress toward a second Greek bailout, which would also total around 110 billion euros and aim to fund the country into late 2014, is not being made quickly enough and that the delay is poisoning investors' confidence in weak economies around the region. "We need to move on this in the next couple of weeks. It's not a case of waiting until late August or early September as Germany is saying. That's too late and markets will make us pay for it," a top euro zone official told Reuters on Saturday.

In Germany on Sunday, President Christian Wulff said Greece would need a lot longer to resolve its debt problems than many people in Europe were now acknowledging. Wulff, a former leader in Chancellor Angela Merkel's conservative Christian Democrats and now Germany's ceremonial head of state, told ZDF television there was a need for "an overall concept" for resolving Europe's debt crisis. "It can't be something that will suffice for a three-month period but rather has to offer solutions to the problem that will cover the next 10 to 15 years," Wulff said.

The debt and the delusion are both all-American: $14 trillion (8.75 trillion pounds) of debt has been amassed and there is no cogent plan to reduce it. The figure is impossible to comprehend: easier to focus on the fact that it grows at $40,000 (25,000 pounds) a second. Getting out of Afghanistan will help but actually only at the margins. The problem is much bigger than any one area of expenditure.

The economist Jeffrey Sachs, director of Columbia University's Earth Institute, is no rabid fiscal conservative but on the debt he is a hawk: "I'm worried. The debt is large. It should be brought under control. The longer we wait, the longer we suffer this kind of paralysis; the more America boxes itself into a corner and the more America's constructive leadership in the world diminishes."

The author and economist Diane Coyle agrees. And she makes the rather alarming point that the acknowledged deficit is not the whole story. The current $14 trillion debt is bad enough, she argues, but the future commitments to the baby boomers, commitments for health care and for pensions, suggest that the debt burden is part of the fabric of society: "You have promises implicit in the structure of welfare states and aging populations that mean there is an unacknowledged debt that will have to be paid for by future taxpayers, and that could double the published figures."

Richard Haass of the Council on Foreign Relations acknowledges that this structural commitment to future debt is not unique to the United States. All advanced democracies have more or less the same problem, he says, "but in the case of the States the figures are absolutely enormous".

Mr Obama is struggling to marshal support for a budget package that would cut the national debt by $4 trillion (2.5 trillion pounds). The US risks defaulting on its debts in just over three weeks, when the current federal budget runs out. Eight top Senate and House of Representatives leaders met - unusually - on a Sunday in the Cabinet Room of the White House.

As the talks got under way, Mr Obama was asked whether they could "work it out in 10 days". "We need to," he replied. The Republican Speaker of the House of Representatives, John Boehner, said on Saturday that he favoured a less ambitious target for debt reduction of $2 trillion. Republicans baulk at tax increases in the Obama proposals. And his Democrat allies are no more enthusiastic about proposals to cut social welfare and Medicaid.

US government currently runs a $1.5 trillion budget deficit, requiring it to issue debt in the form of treasury bills, bonds and other securities. Public debt was $14.3 trillion on 31 May, up from $10.6 trillion when Mr Obama took office in January. Most is held by the public, with the rest held in US government accounts. Congress has voted to raise the US debt limit 10 times since 2001.

Recent polls show that 69% of Pakistanis see the US as more of an enemy than a partner. American taxpayers are increasingly asking: Why give aid to Pakistanis if they don't want it? So this move is partly driven by pressure in Congress to cut spending to deal with mounting debt. It's also technical - no point sending some equipment if American trainers are not in Pakistan to use it. Big military deliveries won't be affected so the impact is limited.

Still, this is a strong message by the Obama administration - the first time it withholds aid from Pakistan on purpose to express displeasure with its actions. It's an attempt to force the Pakistani army to choose between its relationship with America and its ties with militant groups. It may work, it could also backfire, which is why Washington remains careful not to push too hard.

Pakistan Information Minister Firdous Ashiq Awan said Admiral Mullen's statement was "extremely irresponsible and regrettable". She said it would cause difficulties in relations between the sides and prove a setback to the war against terror. The increasing US drone attack on militants inside Pakistan along the Afghan border is also a continuing source of antagonism.

British military trainers were also withdrawn at the request of the Pakistani government last month.