S&P cut the long-term US credit rating by one notch to AA-plus on concerns about the government's budget deficits and rising debt burden. The move is likely to raise borrowing costs eventually for the American government, companies and consumers.

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," S&P said in a statement.

The decision follows a fierce political battle in Congress over cutting spending and raising taxes to reduce the government's debt burden and allow its statutory borrowing limit to be raised.

On August 2, President Barack Obama signed legislation designed to reduce the fiscal deficit by US$2.1 trillion over 10 years. But that was well short of the US$4 trillion in savings S&P had called for as a good "down payment" on fixing America's finances.

The White House maintained silence in the immediate aftermath of S&P downgrade.

The S&P 500 stock index fell 10.8 percent in the past 10 trading days on concerns that the U.S. economy may head into another recession and because the European debt crisis has been growing worse as it spreads to Italy.

S&P's move is also likely to concern foreign creditors especially China, which holds more than US$1 trillion of US debt. China has repeatedly urged the US to protect its dollar investments by addressing its budget problem.