WASHINGTON, July 30: Investors headed toward safety on Friday -- including into US Treasury bonds -- as the deadlocked US government moved closer to defaulting on its debt and being hit with a historic credit downgrade.

With the country facing a possibly devastating cash crunch from August 2, and politicians unable to agree a plan to deal with its massive debt and deficits, investors and bankers sought liquidity and safe havens from the unpredictable fallout.

“We've added several billion dollars of excess cash which we think is a prudent thing to do in the environment of uncertainty that exists today,” said Steven Goulart, chief investment officer of giant life insurer MetLife.

Investors and bankers jumped out of the shortest-term US debt, those Treasury bills and notes maturing in the first weeks of August, out of fears that payment could be delayed.

But they also confidently piled into longer-term Treasuries, sending the yield on the 10 year bond down 14 basis points to 2.81 per cent.

Foreign exchange traders sent the dollar to a record low against the safe-haven Swiss franc -- 0.7864 per dollar, compared to 0.7990 late Thursday.

It neared a benchmark low against the yen, which moved to 76.73 yen per dollar compared to 77.74 yen a day earlier.

Gold meanwhile powered to a new record of $1,632.80 per ounce, another sign of a move to safety.

And despite a slew of buoyant second quarter earnings reports, stock investors sold off holdings, sending the markets to their worst week of the year.

The biggest worry is that Congress will not raise the $14.3 trillion debt cap before August 2, when its spending commitments will begin to outpace cash inflow by $120 billion a month or more.

“Different types of events have happened in history and we know to some extent how markets react to those events,” said Owen Fitzpatrick of Deutsche Bank.

“But here we never had a credit downgrade. It's unchartered territory.” “The recovery has lost momentum, the US is up to its neck in debt and the Federal Reserve is considering more stimulus,” said Kathy Lien of forex experts GFT.

“If the US loses its prized AAA rating, it will truly be the straw the broke the dollar's back.”

Financial institutions moved defensively toward more liquid assets, even as they dismissed the likelihood of a default.

Barclays Capital said it expected a jump in money flowing into non-interest bearing bank accounts, and the volume of transactions on the short-term interbank repo market to fall due to heightened risk of aversion.—AFP