NEW YORK-Not even a string of bet­ter earn­ings re­ports could stave off wor­ries about debt on yes­ter­day.Eu­rope's bank­ing trou­bles and an im­passe over lift­ing the US gov­ern­ment's bor­row­ing lim­it helped drag down stock mar­kets in the US and Eu­rope. Gold rose above US$1,600 an ounce as in­vestors sought safe places to park mon­ey.The S&P 500 in­dex dropped 10.70 points, or 0.8 per cent, to close at 1,305.44.

The Dow Jones in­dus­tri­al av­er­age and Nas­daq com­pos­ite in­dex gave up their gains for the month. The Dow fell 94.57 points, 0.8 per cent, to 12,385.16. The Nas­daq fell 24.69 points, or 0.9 per cent, to 2,765.11.The re­sults of stress tests on Eu­ro­pean banks re­leased last week came un­der deep­er scruti­ny. Eight banks failed the test aimed at mea­sur­ing how well they would hold up un­der ad­di­tion­al fi­nan­cial strain.In the US, the debt lim­it de­bate re­mains at a stand­still in Wash­ing­ton. The Trea­sury De­part­ment says the lim­it must be raised by Au­gust 2 or the gov­ern­ment risks de­fault­ing on its debt.

But a deal needs to be reached soon, pos­si­bly as ear­ly as Fri­day, to have leg­is­la­tion ready for Pres­i­dent Barack Oba­ma to sign by the dead­line. Rat­ing agen­cies warned last week that the im­passe puts the coun­try's triple-A cred­it rat­ing grade at risk.House Re­pub­li­cans are prepar­ing to vote to­day on their plan that would lift the debt ceil­ing but al­so slash spend­ing. The pro­pos­al in­cludes a bal­anced-bud­get amend­ment to the US Con­sti­tu­tion. Pres­i­dent Barack Oba­ma pledged to ve­to the bill.

The lat­est de­lay in reach­ing a deal is be­gin­ning to weigh on mar­kets.US banks stocks, which would get hit hard in the event of a de­fault, fell sharply. Bank of Amer­i­ca slid 2.8 per cent, to US$9.72, the biggest drop for the 30 stocks in the Dow av­er­age. The bank re­cent­ly an­nounced an US$8.5 bil­lion set­tle­ment with a group of mort­gage bond in­vestors and re­ports earn­ings to­day. It's the on­ly ma­jor bank trad­ing in the sin­gle dig­its.Five stocks fell for every one that rose on the New York Stock Ex­change. Vol­ume was slight­ly be­low av­er­age at 3.7 bil­lion shares. (AP)