President Barack Obama vowed on Monday that America would always be a "triple-A country," fiercely defending US credit after a historic debt downgrade and saying the economy could be fixed with political will.
Investors ignored him, as anxiety triumphed on the first trading day after the Standard & Poor's downgrade of American debt.
The Dow Jones industrials closed down 634 points, or 5.5 per cent, to 10,809. It was the first time the Dow fell below 11,000 since November - the biggest one-day point drop since December 2008 and the sixth biggest fall ever.
The broader S&P 500 lost 5.7 per cent, while the tech-heavy Nasdaq Composite plunged 5.6 per cent, on a day of market turmoil around the world sparked by US debt fears and wider concern about Europe's debt crisis.
Speaking against a backdrop of tumbling global stock markets, Obama said he would present his own solutions for mending US debt woes in "coming weeks" but again called on Republicans to accept tax hikes on the richest Americans.
The president was making his first public comments on the historic decision by ratings agency Standard & Poor's on Friday to downgrade the AAA credit rating on US sovereign debt for the first time to AA+ with a negative outlook.
"No matter what some agency may say, we have always been and always will be a triple-A country," Obama said, arguing global investors still saw the US economy as one of the safest investments in the world.
But he conceded that fiercely partisan combat in Washington was hampering efforts to fix the US economy, and called on all sides to unite on a balanced solution to ease the deficit tipped to hit 1.6 trillion dollars this year.
"Here's the good news. Our problems are eminently solvable. And we know what we have to do to solve them," Obama said at the White House.
The president said the solution to US deficit woes was a mixture of tax rises on the most affluent Americans and modest cuts to state-run health programmes plagued by rising costs, like Medicare for the elderly.
"Making these reforms doesn't require any radical steps. What it does require is common sense and compromise," Obama said.
The formula was a failed part of an Obama push for a "grand bargain" during the fierce debate over raising the US government's borrowing authority which wrapped up last week.
Republicans refuse to countenance any kind of tax rises and Obama's Democratic allies have balked at any cuts to Medicare or other aspects of the American social safety net.
"It's not a lack of plans or policies that is the problem here. It's a lack of political will in Washington," Obama said, billing a congressional committee set up under the debt ceiling deal as a way out of the crisis.
"It's the insistence on drawing lines in the sand, a refusal to put what's best for the country ahead of self-interest or party of ideology. And that's what we need to change."
But within minutes of Obama's speech, covered by television news networks alongside a split screen showing the Dow Jones Industrial Average plunging by hundreds of points, Republicans reaffirmed their positions.
Mitch McConnell, the top Republican in the Senate, said he disagreed with Obama's call for "tax hikes on American families and job creators."
But McConnell said he did believe the congressional committee "can and should focus on entitlement reform, an area where the president has already said he is willing to support significant savings."
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