Global Markets collapse on US defaulting alarms over debt standstill

European and Asian markets fallen as US representatives remained standstill over a deal to enhance Washington's debt limit that is important to avoid a US default.

 London's FTSE 100 index of leading shares initiated down 32 points - or 0.5pc - at 5902.31, with Germany's DAX and France's CAC both falling 0.7pc.

In Asia Tokyo's Nikkei 225 lost 0.8pc, Hong Kong's Hang Seng slid 0.8pc, Seoul's Kospi fallen 1pc and Australia's ASX fell 1.6pc. China's Shanghai Composite dropped by 3.2pc and the Shenzhen Composite was down 4pc, with Saturday's rail crash also having an impact.

US Treasury Secretary Tim Geithner cautioned yesterday that America hazards a main backlash from financial markets except the sketch of a deal to put off a government default is decided in the next 24 hours.

"The only thing you can be guaranteed of over the coming hours and days is instability as the political posturing continues in the US," said Ben Potter, market strategist for IG Markets, in a report.

Weeks of talks between Democrats and Republicans to elevate the country's $14.3 trillion (£8.8 trillion) debt ceiling and avoid default have until now created nothing, and discussions between President Obama and John Boehner, the top Republican in Congress, fragmented on Friday.

The President now faces a mix up to obtain a deal agreed and voted through by Congress before the August 2 time limit, when the US will face its first ever default. A plunge in global markets appears that there are worries this could not be possible, or nervousness over possible tax climbs or expenditures cuts.

Futures agreements indicate that Wall Street will also slide, with the Dow Jones, the broader S&P 500 and technology rich Nasdaq forecast to open down around 1pc.

The US is facing mounting pressure to reach a declaration, as the collision of a US default would be felt throughout the world. Business secretary Vince Cable told the BBC's Andrew Marr on Sunday that it could have effects for the UK.

"The insincerity of the situation at the time, with markets opening tomorrow morning, is that the largest risk to the world financial system comes from a few right-wing nutters in the American Congress before the Eurozone," he said.