A debt default would have a catastrophic effect on the nation's financial system and also deal a huge setback to New York City, Mayor Michael Bloomberg said on Tuesday.

Bloomberg, mentioned among possible successors to Treasury Secretary Timothy Geithner, said the federal government must avoid damaging the nation's economy and its credibility around the world with a first-ever U.S. default.

America's good name and credit are just too important to be held hostage to Washington gridlock, and I hope that in the end cooler heads will prevail and an agreement will be reached quickly, Bloomberg, a political independent, said in a statement.

Congress and President Barack Obama are squabbling over a compromise that would raise the country's $14.3 trillion debt ceiling. Republican House of Representatives leaders oppose tax increases; Democratic Senate leaders are fending off cuts to Social Security and Medicare. The battle must be resolved by August 2 or the country will run out of money.

Geithner will not make a decision on his future at the U.S. Treasury until after the debt limit negotiations conclude, according to people familiar with his thinking. However, he has recently said he expects to remain in the job for the foreseeable future.

The Treasury has tried to call attention to the concerns that Wall Street and corporate chief executives have over a failure to raise the debt limit in time to avoid market turmoil.

Bloomberg, founder of the information company that bears his name, is recognized as a key advocate for keeping Wall Street healthy, and the Treasury views him as an ally in its efforts to persuade Congress to raise the debt limit.

A Treasury spokesperson pointed out his pending remarks earlier on Tuesday, and at the same time highlighted a letter from more than 450 U.S. CEOs urging that Congress reach a deal quickly.

Bloomberg, first elected in 2001, has often offered his opinion on national and global issues. But he told reporters in both English and Spanish that he planned to complete his third full four-year term.

Wall Street drives the local economy and the city remains a world financial capital despite rising overseas competition.

Like most states and cities around the nation, New York City's economy has yet to recover its pre-recession vigor. Economists say states and cities are imperiling the national recovery by laying off tens of thousands of public workers.

The mayor said a default would also take a serious toll on our economy, and that at a time when the nation is still trying to recover from the deep recession.

Bloomberg, who belonged to both major parties before becoming an independent, has been praised by fiscal monitors for improving the city's finances by increasing reserves. He has faced criticism for not curbing the pay and benefits of unionized city workers, as well as rejecting an income tax on the wealthy in favor of layoffs.

(Reporting by Joan Gralla and David Lawder; Editing by Andrew Hay and Dan Grebler)