Fund firms contacted by Reuters said rating agency research tended to be backward-looking and superficial, and often encouraged the kind of speculation that has recently dragged down Italy, one of the world's largest government bond issuers. "We have canceled our subscriptions to two of them and they haven't left us alone since. It has been very irritating," the head of sovereign debt investment at one large European bond investor told Reuters on condition of anonymity.

"It would be naive to blame the agencies for everything that went wrong during the financial crisis but anyone who relies on a third party to form their investment opinions is headed for trouble... clients pay us to make those decisions, it would be completely wrong of us to abdicate that responsibility." Investors say they have steadily reduced reliance on external research providers ever since rating agencies slapped high ratings on complex structured financial investment products such as collateralized debt obligations (CDOs) which later turned out to be far riskier than initially assessed.

A broad push for development of proprietary research teams shows credit ratings agencies have never fully regained the trust of some of their most important buy-side clients, some of whom are still counting the costs of belated warnings of a change in the risk profile of debt issuers. Relations have cooled even further in 2011 as the increasing probability of a European sovereign debt default threatens to kick a feeble economic recovery sharply into reverse.

European Commission President Jose Manuel Barroso has said Europe was looking at ways to curb the power of the mainly US based agencies and was weighing possibilities for legal redress after Moody's downgrade of Portugal's debt.

Brown on Thursday signed into law SB 48, which is designed to take effect in January of next year, although the San Francisco Gate notes that the state's fiscal crisis is so deep it will be unable to purchase the new texts until 2015 at the earliest. Pushed as an antidote to gay bullying in schools, the measure mandates textbooks to highlight homosexual persons and their activities in American history.

It simultaneously reinforces a gag on religious doctrine, noting that "any sectarian or denominational doctrine or propaganda contrary to law" is forbidden. The text of the law ends with a warning shot at private schools in California, stating: "It is the intent of the Legislature that alternative and charter schools take notice of the provisions of this act in light of Section 235 of the Education Code, which prohibits discrimination... in any aspect of the operation of alternative and charter schools."

The bill includes no age requirement, meaning the changes could affect even the lowest elementary school grades, notes Baptist Press. The Assembly had approved the measure by a 49-25 vote on July 6, following a heated debate. Republican Assemblyman Tim Donnelly expressed outrage over the bill on the chamber floor. "I think it's one thing to say that we should be tolerant. It is something else altogether to say that my children are going to be taught that this lifestyle is good," said Donnelly, according to the Associated Press. "As a Christian, I am deeply offended."

Meanwhile, family advocates expressed alarm at the new law's obvious implications for the national textbook market. "The reality is that the major textbook manufacturers do not create different textbooks for each state," said Pacific Justice Institute (PJI) president Brad Dacus in a statement July 6. "Instead, they seek to comply with mandates in the largest states, especially California and Texas. As a result, many smaller states are pressured into approving California-focused instructional materials, which must now cater to the gay history mandate."

Randy Thomasson, president of SaveCalifornia.com, a conservative family group, said under the new law parents will have no choice but to take their children out of public school and homeschool them to avoid what he said was "immoral indoctrination." The new law applies only to public schools, not private schools or families who homeschool.

"Jerry Brown has trampled the parental rights of the overwhelming majority of California fathers and mothers who don't want their children to be sexually brainwashed at school," Thomasson said. "This new law will prohibit textbooks and teachers from telling children the facts that homosexuality is neither healthy nor biological."

Spot gold rose as high as $1,600.40 an ounce and was up 0.4 percent at $1,598.76 an ounce at 0845 GMT (09:45 am British time). Gold rose more than 3 percent for a second straight week to Friday, a feat it has not achieved since February 2009. Data from US futures regulator the Commodity Futures Trading Commission showed on Friday that managed money sharply raised bullish bets in US gold futures and options in the week ended July 12 as bullion prices rallied.

"CFTC data shows a surge into gold, so despite the higher levels the professionals have returned to gold with a vengeance," said Saxo Bank analyst Ole Hansen."The stress test result was met with a lukewarm response with focus again switching back to Europe. When that happens gold is often allowed to perform despite the dollar strengthening at the same time."

Sovereign default fears are growing in both Europe and the United States. The United States is struggling with deficit reduction talks ahead of the White House's July 22 deadline on a deal to raise the $14.3 trillion debt ceiling. Stock markets fell in Europe as bank stocks came under pressure after a capital stress test failed to dispel fears about the regional debt crisis, while Bund futures opened higher as uncertainty ahead of a euro zone meeting this week underpinned appetite for safe-haven assets.

The more investors fear that heavily indebted euro-zone governments will be unable to repay their debts, the more the yields on their bonds rise, dragging down their value in banks' balance sheets, erasing their capital, and increasing the need for yet more bank bailouts by stronger euro-zone governments.

Europe's banks were in the spotlight on Friday when the European Banking Authority released its bank stress-test results, showing eight banks failed a test of their ability to withstand a prolonged recession. Euro zone leaders will meet in Brussels next Thursday to discuss a second bailout package for Greece and the financial stability of the euro area, European Council President Herman Van Rompuy said on Friday.

"Next week will be another headline driven week," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "On one side of the Atlantic there will be news regarding the status of Greece's second bailout and on the other side is the debt ceiling and the potential of a ratings downgrade." The uncertainty benefited the safe-haven Swiss franc this week. The dollar had its worst weekly performance since late May against the Swiss franc losing 2.7 percent.

"We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty," Moody's analyst Steven Hess wrote in the report. The agency last week warned it would cut the United States' AAA credit rating if the government misses debt payments, increasing pressure on Republicans and the White House to come up with a budget agreement.

Moody's said it had always considered the risk of a US debt default very low because Congress has regularly raised the debt ceiling during many decades, usually without controversy. However, the current wide divisions between the House of Representatives and the Obama administration over the debt limit creates a high level of uncertainty and causes us to raise our assessment of event risk," Hess said.

Stepping further into the heated political debate about US debt problems, Moody's suggested the government could look at other ways to limit debt. It also cited the example of the Maastricht criteria in Europe, which determines that the ratio of government debt to GDP should not exceed 60 percent. It noted, however, that such a rule is often breached by the governments. In the United States, Moody's said the debt limit had not effectively curbed the rise in government debt because lawmakers regularly raise it and because that limit is not related to the level of expenditures approved by Congress.

Instead, Boehner and House Majority Leader Eric Cantor (Republican for Virginia) plan to move the Cut, Cap and Balance Act on the floor next week, which would require passage of a balanced budget amendment to the Constitution before the debt limit is raised. A House GOP leadership aide said at noontime Saturday that Boehner and Cantor did not send Obama a revised proposal to raise the debt-limit, as the president requested.

A White House official said talks continue despite the missed deadline. "The president, vice president and staff have been in frequent communication with leaders and staff in both chambers and parties, discussing various options," said the official. At a meeting late Thursday afternoon, Obama gave congressional leaders 24 to 36 hours to meet with their colleagues to figure out a plan that could pass both chambers. "It's decision time," Obama said.

Ignoring Obama's directive, Republican leaders are coalescing around the Cut, Cap and Balance bill that is expected to pass the House but has virtually no chance in the Democrat-controlled Senate. The legislation would cut $111 billion in fiscal year 2012, cap spending at 18 percent of gross domestic product by 2021 and would authorize a $2.4 trillion increase in the debt limit after Congress passes a balanced budget amendment. House Republicans discussed it at a special conference meeting Friday morning and plan to put it on the floor next week.

"Nothing would destroy more quickly and in a more lasting fashion incentives for a solid budget policy than joint guarantees for sovereign debt," he said. "But this is exactly what some politicians and economists are proposing in the form of eurobonds as a solution to Greece's problems."

Eamon Gilmore, Ireland's deputy prime minister, said issuing eurobonds was "one of a series of options that have to be looked at" and "an option I favour". Mr Gilmore said the stronger European countries had to see the crisis as a "eurozone problem rather than an issue for individual countries".

On Friday, Deutsche Bank analysts warned that markets around the world could crash by more than a third if Europe fails to resolve its debt crisis. Over the weekend Poul Thomsen, the International Monetary Fund's mission chief to Athens, said that Greece's finances were on "a knife edge." Last week the IMF said Greece needed an extra 100 billion euros (88 billion pounds) of aid on top of the 110 billion euros bail-out package agreed last May. Greece is already being crushed under its 350 billion euros debt pile.

Their warnings about the precarious finances of the world's top economies have also roiled investors more accustomed to seeing emerging market countries take the brunt of criticism. Tension hit new highs on both sides of the Atlantic last week as Moody's and Standard & Poor's threatened to downgrade the United States' prized "triple-A" rating.

A few days earlier, Moody's slashed ratings in Ireland and Portugal to "junk" status, triggering an outcry from European officials.

"These opinions, they continue to give them in such a way that it worsens the crisis," Ewald Nowotny, a member of the European Central governing council, said on Tuesday, referring to the agencies. He said markets could live without them. Now that the agencies are focusing their fire on the rich world, US and European officials - long proponents of seeing indebted nations "take their medicine" - are crying foul.

Forecasters warned the heatwave would persist through much of the coming week and cautioned residents in more than three dozen states to take extra precautions. The National Weather Service posted excessive heat warnings for much of the country's midsection, including Illinois, Wisconsin, Minnesota, Iowa, Missouri, Kansas, Nebraska, Oklahoma, as well as South and North Dakota, where forecasters predicted heat indexes could hit 115 degrees.

"This will likely be the most significant heat wave the region has experienced in at least the last five years," the weather service said.

Cities especially hard hit by the heat included Rapid City, South Dakota, Springfield, Illinois, and Minneapolis, Minnesota, where AccuWeather.com meteorologists were predicting long-standing high-temperature records would fall this week. Kristina Pydynowski, a senior meteorologist at AccuWeather, predicted the heatwave will affect more than 40 states. All the states will see temperatures of 90 degrees Fahrenheit or higher, she said, and "a large number of them will bake above 100 degrees for days on end."

The scorching weather is the latest in a series of meteorological problems to beset the Midwest in recent months.

The list includes the devastating tornado that ripped through Joplin, Missouri in late May, killing nearly 160 people and destroying more than 8,000 homes and other structures, as well as the ongoing flooding along the Missouri River, which has triggered weeks of evacuations and other emergency measures from Montana through Missouri.

Both Moody's and Standard & Poor's are threatening to downgrade the country's debt amid fears of a national insolvency. But for once it is not a debt-stricken euro-zone member that has come into the crosshairs of the powerful rating agencies. This time it is the United States, the world's largest economy, that is at risk of going bust. The US needs to raise its debt ceiling, currently set at $14.3 trillion (10.1 trillion euros), by August 2, otherwise the country will run out of money. But negotiations between President Barack Obama and top Republicans and Democrats have so far failed to make progress.

The mass-circulation Bild writes:

"Playing poker is part of politics, as is theatrical posturing. That's fair enough. But what America is currently exhibiting is the worst kind of absurd theatrics. And the whole world is being held hostage."

"Irrespective of what the correct fiscal and economic policy should be for the most powerful country on earth, it's simply not possible to stop taking on new debt overnight. Most importantly, the Republicans have turned a dispute over a technicality into a religious war, which no longer has any relation to a reasonable dispute between the elected government and the opposition."

"If it continues like this, the US will be bankrupt within a few days. It would cause a global shockwave like the one which followed the Lehman bankruptcy in 2008, which triggered the worst economic crisis since the war. Except it would be much worse than the Lehman bankruptcy. The political climate in the US has been poisoned to a degree that is hard for us (Germans) to imagine. But we should all fear the consequences."

Even in the "milder" scenario where the crisis does not spill over into the wider economy, we would see markets fall by 12 per cent. The warning came as EU president Herman Van Rompuy said eurozone nations will hold a special summit in Brussels on Thursday over a second bail-out for Greece.

The announcement came after the International Monetary Fund urged officials to act with a "greater sense of urgency". The flight from Italian and Spanish bonds in recent days has stoked fears that countries "too big to bail" could become embroiled. Division in the eurozone over to how to tackle its debt woes were thrown into sharp relief by statements from Germany's finance ministers on whether the shared currency is under threat.

There is "no crisis of the euro", according to Germany's deputy finance minister, Joerg Asmussen, calling it "a crisis of public debt and competitiveness". Meanwhile Wolfgang Schaeuble, his finance minister, told a newspaper: "The crisis in confidence... prompted by Greece is now endangering the euro as a whole."

The leader of the right-wing populist Freedom Party of Austria (FPO), Strache has steel-blue eyes and looks dashing in a dark suit. He is not someone who shies away from selling pipe dreams as prophecies. "As chancellor," he promised in June, he plans "not to do everything differently" but to "improve many things."

In his choice of words, Strache sounds out of touch with reality. Given that he is the nightmare of Austria's major parties, the center-left Social Democratic Party of Austria (SPO) and the center-right Austrian People's Party (OVP), who does he intend to govern the country with? "That'll work itself out," he says. "After the next elections, different people will be in charge" in the SPO and the OVP.

Polls now place Strache's FPO consistently neck and neck with the two "old parties," and in May it was even the top choice among voters.

Strache is already telling people that if he comes into power, the country will no longer pay a cent for "bankrupt EU countries like Greece" because, for someone like him, "the red, white and red shirt" - a reference to the colors of the Austrian flag - "is tighter than the Brussels straitjacket."

It was not immediately known if the waters of the river had disappeared due to sinkhole activity that can occur after earthquakes or if the earth shaking caused damming that dried up the river near the Miravalles volcano. The quakes were centered near the Nicaragua and Costa Rica border in the same vicinity as the Miravalles volcano. An entire body of water disappears? Strange but true, and this isn't the first time this odd event has happened.

In 2010, the Iska River in Slovenia disappeared after local residents heard loud crashing and banging overnight. The next morning, the river was dry and the riverbed was full of fish and other creatures. It was believed that the waters of the river had drained through a large crack into an underground riverbed. This disappearance was not believed to have been related to an earthquake.

Most recently - aside from the disappearing river in Costa Rica - an entire reservoir in Huntsbury, New Zealand, that was filled with 36 million liters of water disappeared following a 6.3 magnitude earthquake. The reservoir water disappeared after the earthquake struck Christchurch February 22.

A body of water disappearing is not unusual, nor is it unheard of for an earthquake to change the shape and form of bodies of water. There have also been numerous examples of seismic activity creating new bodies of water. The historic New Madrid earthquakes in the central United States created a lake in northwestern Tennessee in 1812. Reelfoot Lake was formed during the February 7, 1812, earthquake that was one of several to strike the region during the winter of 1811 and 1812. That earthquake, which is estimated to have been at least 7.0 in magnitude or higher, caused subsidence along the Reelfoot River, dropping a 13,000 acre area of land between 4 and 19 feet. This area filled with water to become Reelfoot Lake.

The detail provided by the banks is far greater than in last year's stress tests and the fear now is that with so much information fund managers and bank analysts will be able to make their own judgments on how much extra capital will be required by the 90 banks covered by the tests. "I think next week could see chaos. It's clear the tests the EBA has done are inadequate. We now have the weekend to work out what the banks really need," said one analyst at a major European bank.

Using tougher criteria, Credit Suisse analysts said at least 14 banks should have failed the test. Credit Suisse estimated that these banks, which would include all seven Greek banks participating in the process, need to raise about 45 billion euros in new capital. In addition to the nine that failed, another 16 banks need to strengthen their balance sheets to rebuild confidence in the embattled sector.

Britain's lenders received a clean bill of health, but five banks in Spain, two in Greece and one in Austria failed the tests. Another German bank would have failed but dropped out of the tests due to a dispute over its capital. A further seven Spanish, two Greek, two Portuguese and two German lenders were among the 16 identified as perilously close to danger.

Their priority now is to quarantine their US interests. In the news media, these include the Journal and Dow Jones news wires, overseen until Friday by Mr Hinton, the New York Post tabloid and the Fox News cable network, a bete noire of American liberals, including Barack Obama's administration, for its relentless promotion of conservative causes.

For all the focus on legality, lurking close to the surface is politics. The Wall Street Journal and the New York Post both hew to a conservative agenda on their opinion pages. But it is the uncompromising Right-wing news agenda of Fox News that provokes a visceral loathing among American liberals, both for its politics and its success.

So there was barely concealed glee for many Democrats at Mr Murdoch's travails last week. "This is an empire that was built on a set of journalistic ethics that's beginning to explode and unravel," said John Podesta, a prominent Obama ally in Washington. With the Republicans in control of the House of Representatives - and well-placed to take the Senate from the Democrats next year - the prospects of fresh legislation are limited.

But at News Corp's gleaming corporate headquarters on the Avenue of the Americas in midtown Manhattan, executives are well aware that it will not require new laws for the company to face a commercial meltdown if audience, advertisers and stars turn against it - as they appear to be doing in Britain.