BREAKING NEWS: U.S. stocks sink after Standard & Poor's lowers its outlook for U.S. long-term credit rating from "stable" to "negative"

The US has been warned that the credit rating on its government debt could be cut by Standard & Poor's.

S&P is concerned that Democrats and Republicans will not be able to agree a plan to reduce the growing US deficit.

The agency has downgraded its outlook from stable to negative, increasing the likelihood that the rating could be cut within the next two years.

The US Treasury responded that S&P had underestimated its ability to tackle the national debt.

The surprise move sent US and European stocks lower. The S&P 500 fell the most in a month, and the US dollar dropped against the euro and Swiss franc. Oil was also sharply lower.

In Europe, UK, German and French stocks all fell by at least 2%. Shares in Milan plunged more than 3%.

The US federal deficit currently stands at $1.4tn (£858bn) and is expected to reach $1.5tn in the current fiscal year. (read more)