NEW YORK, United States (AFP) – European and US stock markets mostly drifted lower Tuesday as traders awaited possible developments on a US debt deal necessary to avert a default.

Sentiment was also weighed down by data showing weakness in China’s economic recovery, with key indicators missing expectations owing to anaemic domestic demand.

Meanwhile, US retail sales rebounded less than expected last month, and a major US retailer, Home Depot, saw its first-quarter revenue drop as consumer spending softened.

The dollar edged higher against main rivals while oil prices fell.

“Concerns are rising that not enough progress is being made to avoid a US default, which would send shockwaves through financial markets,” noted Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Elsewhere, “China’s pandemic snapback is losing elasticity, adding to worries about growth unravelling across the global economy,” she said.

Following a meeting at the White House, US House Speaker Kevin McCarthy said much work remained in negotiations to raise the federal borrowing limit and avert a potentially catastrophic credit default, with the deadline for agreement just days away.

Treasury Secretary Janet Yellen warned again on Monday that the US Government would probably run out of cash on June 1, meaning it would not be able to meet its debt repayment obligations, sparking a potentially devastating default.

Republicans are demanding spending cuts as a condition for passing the Bill while Democrats want a “clean” increase of the borrowing limit with no strings attached.

The Dow dropped one per cent, while the Nasdaq inched lower, with gains by Amazon, Google parent Alphabet and others offsetting losses elsewhere.

Europe’s main stock markets also closed lower.

Data showing that US retail sales rose 0.4 per cent last month, less than analysts had expected, also dampened sentiment.

Briefing.com analyst Patrick O’Hare said the data “wasn’t strong enough to mitigate worries about weakening consumer activity nor was it weak enough to make the Fed think it should entertain a rate cut anytime soon”.

Several US Federal Reserve policymakers have spoken in recent days, but have been divided on whether to pause the US central bank’s interest rate-hiking drive next month or raise rates further.