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S&P downgrades outlook for federal debt

WASHINGTON -- Standard & Poor's Ratings Service downgraded its outlook Monday on U.S. government debt, expressing unprecedented doubts over the ability of Washington to bring the massive federal budget deficits under control.

The agency lowered the long-term outlook to "negative" from "stable," saying there is a 1-in-3 chance that the United States could lose its top investment rating on its debt in the next two years.

S&P said it has little confidence that the White House and Congress will agree on a deficit-reduction plan before the fall 2012 elections and doubts any plan would be in place until after 2014.

The government is on pace to run a record $1.5 trillion deficit this year, the third consecutive deficit exceeding $1 trillion. President Barack Obama and congressional Republicans are sparring over how to reduce the nation's red ink. Their differences over where to cut have put a crucial decision over raising the nation's debt limit in jeopardy.

"We see the path to agreement as challenging because the gap between the parties remains wide," said Standard & Poor's credit analyst Nikola G. Swann.

S&P reaffirmed its investment-grade credit ratings on the U.S. long- and short-term debt itself. The agency gives its top investment rating to just 19 of the 127 countries it analyzes. But it says Britain, France and Germany have moved much more quickly to contain deficits after the 2008 financial crisis and 2007-09 recession.

Stocks plunged after the rating agency lowered its outlook, The Dow Jones industrial average fell 140.24 points, or 1.1 percent, to close at 12,201.59. The Standard & Poor's 500 index fell 14.54, or 1.1 percent, to 1,305.14. The Nasdaq composite fell 29.27, also 1.1 percent, to 2,735.38.

Mary Miller, the assistant Treasury secretary for financial markets, said S&P "underestimates the ability of America's leaders to come together to address the difficult fiscal challenges facing the nation."

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