Markets forecast US will lose its AAA rating 'but not overnight'

Bill Gross, the co-chief investment officer of Pacific Investment Management, says the United States will "eventually" lose its AAA rating.

"It's certainly nothing that's going to happen overnight," California-based Gross said."The markets are beginning to anticipate the possibility."

Standard & Poor's, lowering its outlook on Britain's AAA credit rating to "negative" from "stable", said the nation faced a one-in-three chance of a rating cut as its debt approaches 100 per cent of gross domestic product. US marketable debt is at about 45 per cent of GDP, according to Bloomberg data.

A downgrade was not "imminent", Gross said after Reuters reported he said the US dollar, equities and Government bonds fell on speculation the nation is at risk of losing its top credit rating.

The Obama Administration has pushed the nation's marketable debt to an unprecedented US$6.36 trillion ($10.37 trillion) and on May 11 raised its estimate for the deficit this year to a record US$1.84 trillion. This was up 5 per cent from the February estimate, and equal to about 13 per cent of the nation's GDP.

"Both the UK and the US have prospective deficits of 10 per cent annually as far as the eye can see," Gross said. At some point over the next few years the debt of each might approach 100 per cent of GDP, when country downgrades tended to occur, he said.

The dollar dropped to a four-month low against the euro, the Standard & Poor's 500 Index declined 1.7 per cent and the 10- year Treasury yield rose 0.17 percentage point to 3.37 per cent.

The US will issue a record US$3.25 trillion of debt in the fiscal year ending September 30, according to Goldman Sachs.

Gross' comments come two months after he said the US Government would need to spend as much as US$4 trillion in additional capital to cushion a slowing economy.

- BLOOMBERG