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Gold declined more than 1% Monday after Barack Obama said lawmakers had reached a deal to cut the country's deficit, which, if approved, would remove the threat of a default on debt.

The most-active U.S. gold futures fell more than 1 percent to $1,608.2, but recovered to trade down 0.9 percent at $1,616 an ounce by 0634 GMT.

Spot gold fell 0.8 percent to $1,613.24, off a record high of $1,632.30 set on Friday.

Gold moved up to its record highs on Monday as the talks over US debt ceiling are heating, and concerns over US possible default are growing.

While most investors believe a deal will be done, nervousness ahead of the decision is still pressuring the dollar, lifting U.S. Treasury yields and benefiting gold.

"This has reminded people of the risks involved in government bonds," said Mitsubishi analyst Matthew Turner. "For some investors, gold is a competitor as a safe-haven asset."

Moody’s has trimmed the rating for Greece by 2 notches to Ca Monday which is just one notch before the default status. The ratings agency warned that chance of a default is now “virtually 100 percent.”

Moody’s noted that while the bailout agreed last week by euro zone leaders will help Greece to reduce its debt, the country still faces medium-term solvency challenges and significant implementation risks.

China believes the United States will be able to come out of its debt crisis and resolve an impasse related to raising debt ceiling with no need to be declared a default. China is interested in having US on a high level as it is the biggest foreign creditor and the dollar decline would have a negative impact on its economy.

Chinese advisers think that the deadlock in budget negotiations would not prevent the US authorities to come to a decision to raise the debt ceiling.

The United States will inevitably default when the debt ceiling deadline on August 2 comes, noted David Murrin, chief investment officer at Emergent Asset Management.

"It's inevitable that the US will default - it's essentially an empire which is overextended and in decline - and that its financial system will go with it.

“The question is: does it default when it is forced to by the outside world, probably the Chinese, or does it take the option to default on its own terms in such a way that it may have a strategic advantage," he said.

The euro lost its gains against the dollar and the yen as traders sold the single currency after Standard & Poor's warned that Greece's debt rollover plan could shift the ratings into selective default.

Meanwhile, the euro fell to a 4-day low against the pound.

The euro declined to a 4-day low of 0.9007 against the pound, compared to last week's close of 0.9043. If the euro slides further, it will fall below 0.90 and target the 0.898 level.

Spot gold remained steady during Friday trades completing the week of narrow trading as investor appetite for the save haven bullion diminished on Greece’s austerity measures.

Thursday Greek parliament passed the final austerity measures so as to get the emergency financing from the international lenders and avoid a default.

Meantime, it is widely expected that concerns over troubling US economy will support gold’s appeal.

Spot gold was little changed at $1,498.70 an ounce by 0602 GMT, nearly flat from a week earlier.

Moody’s warned it would downgrade Aaa-rated US states and municipalities if the country on the whole loses its top rating or if federal funding falls significantly as part of a plan to reduce the nation's deficit.

Inasmuch as most states and some municipalities rely heavily on federal funding for the operational purposes, they may appear vulnerable as the government plans to cut budget in the volatile economic environment, Moody's senior analyst Anne Van Praagh noted.

On Tuesday the US President Barack Obama talked to German Chancellor Angela Merkel and urged European countries to prevent a "disastrous" default by Greece. He promised that the United States would also provide its support as it fears the impact of euro crisis on its own economy.

Obama underlined the importance of German "leadership" on the issue. He clearly gave to understand that he expects Berlin to intervene.

Standard & Poor’s rating agency has cut Japan’s long-term sovereign debt rating today for the first time within 8 years since 2002 explaining that the country's government lacked a coherent plan to tackle its mounting debt.

The rating for the largest Asian economy was downgraded to AA-, three levels below the highest possible rating, which serves as a warning sign for other developed nations such as those in Europe and the United States, of the growing concerns about the debt built up during the global financial crisis.

Capital One Financial Corp reported that US credit-card defaults continued their decline for the fourth straight month which means that fewer Americans were falling seriously behind in their credit card payments.

In its regulatory filing Capital One reported that the annualized net charge-off rate for US credit cards dropped to 8.13% in July from 9.28% in June.

The company said that accounts at least 30 delinquent declined to 4.66 percent from 4.79 percent.

A number of largest banks who turned exposed to Dubai World possible default will get back their money after all. Dubai World will repay in full the $26 billion debt it is renegotiating, with interest likely linked to LIBOR.

In its regulatory filing Capital One Financial reported that US credit card defaults increased in January which reflects the still stressed conditions of the consumers.

The company reported that the annualized net charge-off rate for US credit cards jumped 10.41% in January up from 10.14% in December.

The report further reveals that accounts at least 30 days delinquent rose marginally to 5.80% up from 5.78%.

Charge off rate for US auto-loans was 4.27% in January down from 5.68% the previous month with the delinquency rate having fallen to 9.61% from 10.03%.

According to Tuesday report by Moody's Investors Service the US credit card debt write-offs increased in November. The report says that charge-offs grew by about 0.5% to 10.56% with the increase expected to continue to a peak between 12% and 13% in the middle of next year.

Moody also reports that delinquencies which measure the proportion of accounts for which a monthly payment is more than 30 days late, also increased to 6.2% in November while early-stage delinquencies fell to 1.6% for the month.

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