A man walks past an electronic monitor displaying the recent movements of Japan's market indices outside a brokerage in Tokyo. (YURIKO NAKAO/REUTERS)

Asian and European financial markets slid in early trading Monday as investors watched closely to see whether the impasse in U.S. debt negotiations will prompt a dramatic sell-off on global exchanges.

Japan’s Nikkei 225 index, which includes major Japanese companies, was down about 0.63 percent in early trading Monday. The Standard & Poor’s 500 /ASX 200 index, a measure of Australia’s blue-chip stocks, was down about 0.86 percent. South Korea’s benchmark KOSPI index was down about 0.7 percent.

Hong Kong’s Hang Seng index slid about 0.63 percent in early trading, while Shanghai’s Stock Exchange Composite index was down about 0.73 percent.

In Europe, markets were down slightly in early trading, with stocks on key indexes in London, Paris and Frankfurt falling 0.2 percent, 0.5 percent and 0.3 percent, respectively. At the same time, the price of gold, considered a safe haven in uncertain times, jumped 0.2 percent to a record high $1,618 an ounce.

In addition to concerns over a possible U.S. default, markets were absorbing a report Monday morning from Moody’s that downgraded Greek debt by three more notches, plunging it deeper into junk bond status and warning that the country is now almost certain to stage at least a limited default. The rating agency also suggested that the comprehensive Greek bailout reached last week could impact the credit ratings of those nations coming to its rescue.

Of particular concern was France, a nation contributing to the Greek bailout but that some analysts have feared could become caught up in the market turbulence hitting Spain and Italy because of its combination of high debt levels and low growth.

Talks between President Obama and House Speaker John A. Boehner (R-Ohio) broke down Friday evening and efforts to restart the negotiations in time for the opening of Asian markets did not make progress.

The absence of a bipartisan plan for raising the U.S. debt ceiling, and thus avoiding a potential default on Aug. 2, is fueling concerns in global markets because of the crucial role that U.S. Treasury bonds play in all manner of financial transactions. Some analysts expected investors in Asian markets to price some of that concern into stock values.

“Global markets are going to get more and more jittery the longer we go,” said John Peters, senior economist at the Commonwealth Bank of Australia. “Our economy is actually growing quite strongly at the moment,” he added, “but all bets are off when there’s something big looming on the global horizon.”

But Japanese investors have more reason to be worried about the ongoing stalemate in Washington because the Japanese economy is still recovering from March’s earthquake and tsunami.

“I think the stability of the financial market is a precondition for the Japanese economy to recover,” said Katsuyuki Hasegawa, chief market economist with the Mizuho Research Institute in Tokyo. “That pre-condition is now being threatened by the development in the States.”

In addition to watching the Tokyo and Sydney exchanges, investors and policymakers are eager to see how trading fares on the exchanges in Hong Kong and Shanghai, which are to open shortly.

There were signs late Sunday that markets in the United States would open lower Monday morning. Futures contracts for the Dow Jones industrial average, the Standard & Poor’s 500 and the Nasdaq, the three major U.S. stock indexes, were trading lower Sunday night, off by about 1 percent or less.

Asian markets generally fared well last week, with major stock indexes in Australia, Japan and Hong Kong edging up between 2 to 3 percent. China’s Shanghai stock index edged lower by 1.75 percent.

India’s market analysts were closely watching the U.S. developments, especially because the euro zone crisis hurt the country’s markets. But they said their bigger worry is domestic - high inflation, high interest rates, slow industrial growth, high fiscal deficit and a poor monsoon this year. Last week, India scaled down its growth forecast for the current year from 9 percent to 8.6 percent.

 “What happens in the U.S. will definitely have a cascading effect. Asia was gloomy in sentiment today; that will have an effect on India for sure. We are watching the developments in the U.S. keenly,” said Rajesh Jain, executive vice president of Religare Securities, one of the leading retail brokerage houses in India. “But we are hoping that there may be a technical default in the U.S. and nothing catastrophic.”

A slide in Asian markets Monday could spread to the United States since global equity markets are more tightly linked than they once were.

Until now, markets have brushed off Washington’s continued struggle to resolve the debt-limit issue and reach agreement on a plan to tame the deficit. But the prospect of default is now less than nine days away.

Investors had found some solace in the assurances from Democratic and Republican leaders that Congress would eventually lift the $14.3 trillion U.S. borrowing limit and avoid default.

But that claim will be put to the test. The Treasury is set to auction off $99 billion in new debt this week, and demand for the sales could provide the first real indication of whether international markets believe default will be avoided, said Huw McKay, senior international economist with Westpac Institutional Bank in Sydney.

“I think that is what is going to tell the tale,” he said.

Correspondent Rama Lakshmi contributed to this report from India.

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