Mumbai: Indian equities markets fell sharply in early trade on Monday, continuing the free fall, as global markets were jittery after an US sovereign debt downgrade over the weekend. The top credit rating agency in the US, Standard and Poor's, had downgraded the sovereign debt rating of the world's largest economy and cautioned of a further downgrade if the fiscal position of the country did not improve.

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Meanwhile, noting that India was not insulated from global developments like the downgrade of the US, the Reserve Bank on Monday said it was closely monitoring the situation and would continuously assess the impact on the Indian economy and financial markets.

The RBI also said the entire policy and regulatory framework of the country must be "prepared to respond to turbulent financial market conditions arising out of external developments".

"Developments relating to the US economy last week have significantly increased uncertainty about its prevailing condition," the RBI said in a statement.

The 50-scrip Nifty of the National Stock Exchange was also trading in the red at 5,083 points, down 2.46 percent.

Broader markets too were weak. The BSE midcap index was ruling 2.47 percent down and the BSE small cap index was trading 3.04 percent down.

Other major Asian markets too were losing heavily despite efforts by policymakers around the world to restore confidence in financial markets.

The benchmark Japanese Nikkei was down 2.07 percent, the Chinese Shanghai Composite index was ruling 3.68 percent lower, while Hong Kong's Hang Seng had fallen a huge 4.29 percent on Monday.

Top economic voices question US downgrade

Leading economic experts from Democratic and Republican parties alike have voiced outrage over Standard &Poor's downgrade of the US credit rating but disagreed on whom to put the blame.

Steve Forbes, CEO of Forbes, Inc. and a former Republican presidential candidate called S&P's downgrade from AAA to AA+ Friday, 'an outrageous move' given that the government can still pay the interest and principal on its bonds. 'I'm surprised S&P would play politics,' Forbes said.

Larry Summers, former director of the National Economic Council under President Barack Obama, agreed that the US will pay its debts.

'S&P's track record has been terrible and as we've seen this weekend its arithmetic is worse,' Summers said. So there's nothing good to say about what they've done.'

But while Summers placed the blame for the downgrade on House Republicans, who he said 'played chicken with America's credit worthiness', Forbes defended Congressional Republicans, who he said were elected to 'undo the fiscal damage' of the Obama administration.

Outgoing White House economic adviser Austan Goolsbee alleged S&P's credit downgrade was based on 'questionable mathematics.'

Goolsbee also called for policymakers to focus not just on the deficit but also on longer-term proposals aimed at boosting job creation and lowering the nation's 9.1 percent unemployment rate.

Former Federal Reserve Chairman Alan Greenspan acknowledged that S&P's downgrade 'hit the self esteem of the United States' but said US Treasury bonds are still a safe investment.

IMF welcomes EU, G7 statements

The International Monetary Fund (IMF) has welcome the statements made by the leaders of the G7 countries and European Central Bank on taking steps to ensure market stability.

"I welcome the statements from the European Central Bank, from the leaders of Germany and France as well as from the G7, and their renewed commitment to take all necessary action in a coordinated way to ensure stability and liquidity in the financial markets," IMF Managing Director, Christine Lagarde said.

This cooperation will contribute to maintaining confidence and spurring global economic growth, she said in a statement.

"The swift implementation of the commitments by the Euro Area Governments on July 21, 2011, and the recent agreement to reduce the United States' fiscal deficit in the medium term, without undermining growth, are further critical elements for financial stability," Lagarde said.

S&P warns US of further downgrade

Two days after its historic downgrade of America's top notch AAA credit rating, a top executive of Standard &Poor's warned that continued political gridlock in Washington could contribute to another reduction.

Chambers gave the prospect a one-in-three chance. He also pushed back on claims by the White House that the first-ever credit downgrade was the result of faulty analysis by the ratings agency.

'We have been saying for some time that the fiscal trajectory of the United States was on a bad path and that the political gridlock in Washington leads us to conclude that policymakers don't have the ability to proactively put the public finances of the United States on a sustainable footing,' Chambers said.

The S&P head of sovereign ratings also said that it could take years for the US to return from downgraded AA+ to the top rank AAA status.

'Well, if history is a guide, it could take a while,' Chambers said. 'We've had five governments that lost their AAA that got it back. The amount of time that it took for those five range from nine years to 18 years, so it takes a while.'

The agency's concerns 'are centered on the political side and on the fiscal side,' he said.

(Agencies)