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[January 23, 2013]

Investors say U.S. fiscal woes pose biggest risk to global economy

WASHINGTON, Jan 23, 2013 (Los Angeles Times - McClatchy-Tribune Information Services via COMTEX) -- Investors around the world say the fiscal woes of the U.S. -- highlighted by the ongoing fight over the debt limit -- pose the biggest risk to the global economy this year, according to poll results released Wednesday.

More than a third of the respondents in the Bloomberg Global Poll -- 36% -- said the troubles in Washington addressing the huge U.S. budget deficit were their biggest concern. That topped the European debt crisis at 29% and the slowing of China's economy at 15%.

Although the poll found the divisive political atmosphere was chilling investment in the U.S., the nation still easily ranked first as the best place to invest this year.

The U.S. was chosen by 38% of the 921 randomly selected investors, who could chose one or two markets as providing the best opportunities, with China at 31% and the European Union at 22%.

The likely reason: A majority of investors -- 53% -- said the U.S. economy was improving, compared with 32% for China and 16% for the Eurozone.

Overall, 35% said the global economy was improving.

The White House and Congress avoided the potentially calamitous "fiscal cliff" with a deal enacted Jan. 2 to extend most of the George W. Bush-era tax cuts. But they put off decisions about large automatic government spending cuts until the end of February and now are wrestling over an increase in the nation's debt limit.

With a potential default looming if the $16.4-trillion limit is not raised in coming weeks, the House was set to vote Wednesday on a Republican plan to suspend the debt limit through mid May.

Despite the threat of another contentious battle over the debt limit, which would be a repeat of 2011's brinkmanship, 92% of global investors in the Bloomberg Poll said the U.S. was unlikely to default on its sovereign debt.

But a majority sided with the general Republican argument on the debt limit, with 56% saying Congress was right to require spending cuts equal to any increase in the debt ceiling.

Just 40% sided with the Obama administration view that the full faith and credit of the U.S. should be protected at any cost and the debt ceiling should be raised with no preconditions.

The repeated political battles in Washington have had an impact on investors: 8% said the confrontations were leading them to pull out of the U.S. market, with another 39% saying they are holding back some investments.

But 45% said the divisiveness was not affecting their investment decisions, and 35% said they've been investing more.

Investors were somewhat optimistic that Obama and Congress would be able to work together to address the U.S. financial problems.

A majority -- 56% -- expected a deal to make spending cuts in entitlement programs, but most of those investors predicted only modest reductions. And 65% of investors said they expected tax reform legislation to be enacted in 2013, though most of those also expected only modest changes.

Obama was viewed favorably by 55% of the investors in the poll, compared to a 31% figure for House Speaker John Boehner (R-Ohio).

Major central bankers received high marks for their actions to stabilize the world economy: 72% had a favorable rating for European Central Bank President Mario Draghi and 71% for Federal Reserve Chairman Ben S. Bernanke.

Follow Jim Puzzanghera on Twitter and Google+.

___ (c)2013 the Los Angeles Times Visit the Los Angeles Times at www.latimes.com Distributed by MCT Information Services

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