The US government has filed its first lawsuit against one of the world's biggest ratings agencies for giving high ratings to investments which turned toxic and helped bring about the financial crisis.

When Standard & Poor's gives high ratings to investments it is a seal of approval.

However, the US attorney-general Eric Holder has accused the ratings agency of deception.

"S&P misled investors, including many federally insured financial institutions, causing them to lose billions of dollars," he said.

"In addition, we allege that S&P falsely claimed that its ratings were independent, that they were objective, and that they were not influenced by the company's relationship with the issuers who hired S&P to rate the securities in question."

The securities were linked to home mortgages. Financial advisers steered many investors into these products, including local governments in Australia.

When US house prices slumped, home owners began defaulting on their mortgages and the mortgage backed securities turned toxic.

The acting associate attorney-general Tony West says Standard & Poor's said one thing and did another.

"It's sort of like buying sausage from your favourite butcher, and he assures you that the sausage was made fresh that morning and is safe," he said.

"What he doesn't tell you is that it was made with meat he knows is rotten and plans to throw out later that night."

Tony West says that by early 2007 Standard & Poor's own analysts had come to believe that many of the mortgage backed securities were in trouble, but the alarm bells were ignored.

"S&P's business executives rejected those downgrade recommendations," he alleged.

Standard & Poor's says that it will "vigorously defend" itself.

In an interview with business channel CNBC, the company's lead lawyer Floyd Abrams was asked about speculation that the law suit was political payback for a decision to downgrade US government debt.

"I don't think anyone knows. Is it true that after the downgrade the intensity of this investigation significantly increased? Yeah. I'm sure the government would say it had nothing to do with it," he said.

He would not confirm whether or not Standard & Poor's tried to settle the case.