The United States lost its top-tier AAA credit rating from Standard & Poor's, drawing a blast of criticism on Saturday from its biggest creditor China and deepening investors' alarm over the euro zone crisis.
With financial markets in turmoil, finance ministers and central bankers of the Group of Seven major industrialised nations will confer by telephone later on Saturday or on Sunday, a senior European diplomatic source said.
China said Washington only had itself to blame and called for a new stable global reserve currency.
The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone, China's official Xinhua news agency said in a commentary.
The S&P cut in the U.S. long-term credit rating by a notch to AA-plus resulted from concerns about the nation's budget deficits and climbing debt burden. The move is likely eventually
to raise borrowing costs for the U.S. government, companies and consumers.
By calling the outlook negative, S&P signaled another downgrade is possible in the next 12 to 18 months.
Worries that the United States was slipping into recession and the euro zone debt crisis was spreading drove a week-long rout in which $2.5 trillion was wiped off global markets.
The European diplomatic source said the downgrading of the United States' credit rating had added a global dimension on top of the euro zone's debt crisis, raising the need for international coordination.
The G7 will confer by telephone. It's not yet confirmed whether it will be in one stage or in two stages, tonight and tomorrow, the source said.
French Finance Minister Francois Baroin, who would chair such a meeting under the French presidency of the G7 and G20, said in a radio interview it was too early to say whether there would be an early G7 meeting.
In the Xinhua commentary, China roundly condemned the United States for its debt addiction and short sighted political wrangling and said the world needed a new stable global reserve currency.
China, the largest creditor of the world's sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China's dollar assets, it said.
It urged the United States to cut military and social welfare expenditure. It also said further credit downgrades would very likely undermine the world economic recovery and trigger new rounds of financial turmoil.
International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country, Xinhua said.
S&P blamed in part the political gridlock in Washington, saying politics was preventing the United States from addressing its deficit and debt problems.
In Washington, U.S. President Barack Obama urged lawmakers on Saturday to set aside partisan politics after the debt battle, saying they must work to put the United States' fiscal house in order and refocus on stimulating its stagnant economy.
Obama issued the appeal in his weekly radio address recorded shortly before the United States lost its AAA rating. He called on Congress to back measures to give tax relief to the middle class, extend jobless benefits and pass long-delayed international trade pacts.
Both parties are going to have to work together on a larger plan to get our nation's finances in order, he said.
In the long term, the health of our economy depends on it, Obama said. In the short term, our urgent mission has to be getting this economy growing faster and creating jobs.
Baroin said France had faith in the ability of the United States to get out of this difficult period.
While the impact of the rating cut on financial markets when they reopen on Monday may be modest because the decision was expected, the shift may have a long-term impact for the U.S. standing in the world, the dollar's status, and the global financial system.
The global system must now adjust to the many implications and uncertainties of the once-unthinkable loss of America's AAA, Mohamed El-Erian, co-chief investment officer at Pacific Investment Management Co., which oversees $1.2 trillion in assets, told Reuters.
British business minister Vince Cable backed China's call for a new stable global reserve currency but said that for the moment the U.S. dollar remained key.
Frankly, the American legislators made a terrible mess of things a few weeks ago, they have now got back on track, they have undertaken to manage their debt in a prudent way, Cable said.
In Europe, Italy buckled on Friday to world pressure by pledging to bring forward cuts to balance the budget in 2013 in return for European Central Bank help with funding.
We consider it appropriate to introduce an acceleration of the measures which we introduced recently in the fiscal planning law to give us the possibility of reaching our objective of balancing the budget early, by 2013 instead of 2014, Prime Minister Silvio Berlusconi told a news conference after a day of calls with leaders including German Chancellor Angela Merkel and U.S. Treasury Secretary Timothy Geithner.
EU policymakers are divided over how to stop a disastrous spread of the sovereign debt crisis to Italy and Spain, the euro zone's third and fourth biggest economies.
The European Central Bank disappointed markets by buying Irish and Portuguese bonds but not government paper in Italy and Spain where bond yields have blown out this week on fears they may need bailing out.
China and Japan called for coordinated action to avert a new worldwide crisis as did EU Economic and Monetary Affairs Commissioner Olli Rehn.
International policy coordination through the G7 and G20 is of critical importance, Rehn told a news conference, having broken off his vacation and returned to Brussels.
Britain called for a concerted international effort to show governments would work together to avert a financial crisis and Brazil also urged unity, saying the world economy was in a situation of stress.
In BRIC nation India, the prime minister's chief economic adviser said the country's economic growth would not be affected by the cut in the U.S. credit rating.
I don't think India will be much affected beyond the temporary market jitters and we should still grow at 8.2 pct (this fiscal year), C.Rangarajan, Chairman of the Prime Minister's Economic Advisory Council, said.
The U.S. has to show that they have a credible plan of fiscal consolidation and clearly the recent deal is not enough.
(Additional reporting by Paul Taylor and Reuters bureaux; Editing by Angus MacSwan and David Stamp)