HONG KONG (AFP) - Hong Kong's stock exchange has cut the value of US Treasury bills put up as collateral by traders, in a sign of concern that the US debt standoff could end in a devastating default.

Hong Kong Exchanges and Clearing Ltd (HKex), which operates the city's stock exchange, said it had increased the "haircut" on some bills from one percent to three percent.

Global markets have been nervously watching events on Capitol Hill, with the US government set to run out of cash if it is not given authority to raise its borrowing limit before October 17.

Failure to do so will mean it is unable to pay its bills and service its debts, plunging it into a default that economists warn will likely spark another worldwide recession.

Treasury bills that mature in less than a year will now be valued at 97 percent of their market value instead of 99 percent. Clearing houses usually apply a "haircut" to take account of price fluctuations.

US Treasury bills are often used as collateral by dealers for margin requirements.

However, HKex said the measure, announced on Thursday, did not mean it is expecting a US default.

"It doesn't indicate our expectation of a US default, it's just additional risk management measures for any expectation of market volatility increasing, due to the issue," a HKex spokeswoman told AFP.

Asian markets rallied on Thursday - following advances on Wall Street - after Republicans said they were willing to lift the debt ceiling for six weeks in order to give them and Democrats more time to agree a wider budget deal.

President Barack Obama said he was open to such a move and on Thursday held his first talks with Republicans on breaking the deadlock since the government shut down on October 1. Both sides said the discussions were fruitful.