The United States has edged closer to a disastrous debt default as key leaders in Congress voiced hope for a last-minute deal but struggled to ensure enough votes for passage.
Racing against a deadline before Washington starts running out of cash to pay its bills, Senate Majority Leader Harry Reid gave the green light for a blueprint to raise the debt ceiling after two hours of talks with fellow Democrats.
Reid's announcement, which was largely expected, made him the first of the four seniormost congressional leaders to formally endorse an outline crafted by President Barack Obama, with his top Democratic allies and Republican foes.
"There are a number of issues yet to be resolved, and we must understand that there's no agreement that has been made. We're optimistic that one can be reached but we're not there yet," Reid said.
Republican Senate Minority Leader Mitch McConnell said the sides were "very close" to a deal, which would raise the $14.3 trillion US debt ceiling while making deep spending cuts aimed at reining in the galloping budget deficit.
But any compromise would still need to clear the divided Democratic-led Senate and Republican-held House of Representatives, where conservatives close to the "Tea Party" movement have called for draconian belt-tightening while liberal Democrats have vowed to protect the US social safety net.
Representative Nancy Pelosi, the top Democrat in the House, said she needed to talk Monday to members of her party and acknowledged that some of them would likely oppose the package.
"We are all determined that we will not default," Pelosi said, but added that she has not seen the full details.
"We all may not be able to support it, or none of us may be able to support it, but we'll wait and see and we're open to what comes down because, again, the stakes are very high here," she told reporters.
Democratic Representative Raul Grijalva, co-chair of the Congressional Progressive Caucus, rejected the deal in a blistering statement declaring: "This deal is a cure as bad as the disease. I reject it."
Both Obama and Republican House Speaker John Boehner kept largely out of the spotlight. Boehner was to hold a conference call late Sunday with Republican lawmakers, seeking to prevent a Tea Party rebellion that could doom the deal in the House.
Business and finance leaders have warned default would send crippling aftershocks through the fragile US economy, still wrestling with stubbornly high unemployment of 9.2 percent in the wake of the 2008 global meltdown.
But markets showed optimism over a deal. Share prices opened 0.92 percent higher in Tokyo on Monday, while futures were up late Sunday in New York.
The US economy hit its debt limit on May 16 and has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally -- but can only do so through midnight Tuesday (0400 GMT Tuesday).
Without a deal, the US government would have to cut an estimated 40 cents out of every dollar it spends, forcing grim choices between defaulting or cutting back programs like those that help the poor, disabled and elderly.
Reid has said that a new tentative framework for an agreement would lift the debt limit beyond the November 2012 elections in which Obama seeks a second term, a key White House demand.
Aides familiar with the fast-moving negotiations said the two sides were close to an agreement to raise the debt ceiling by about $2.8 trillion, roughly what Obama asked for, in two stages.
That increase would come in two steps: A first tranche would cover roughly $1 trillion, paired with an equivalent number of spending cuts over 10 years.
The accord would create a special 12-member US Congress committee evenly divided between Republicans and Democrats, due to recommend by late November 10-year deficit cuts equivalent to the second slice of debt-ceiling increase.
The two sides were still at odds over whether the committee could recommend an increase in tax revenues -- something Republicans fiercely oppose and would be able to block if their committee members held together.
"We're not going to raise taxes in this deal," McConnell said on CNN.
Much of the fighting focused on what to do if the special committee comes to a deadlock.
Aides floated the possibility such a breakdown would trigger across-the-board spending cuts, or cuts in sensitive areas such as defense or the Medicare health program for the elderly.