Senate leaders nearing US debt ceiling deal

The partial government shutdown enters its third week

With a potential debt default looming, Senate leaders are nearing completion on a deal to stave off a self-inflicted political calamity that would shred US credibility and rock the global economy.

Signs of hope emerged yesterday, three days before a deadline to raise the US government's borrowing limit and as a partial government shutdown enters its third week.

After several failed attempts to end the impasse, veteran political prize fighters Senate Majority Leader Harry Reid and his Republican opposite number Mitch McConnell conducted low-key talks aimed at saving the day.

"I'm very optimistic we will reach an agreement that's reasonable in nature this week to reopen the government, pay the nation's bills and begin long-term negotiations to put our country on sound fiscal footing," Reid said.

At the conclusion of yesterday's Senate session, he said that "we are not there yet, but tremendous progress" has been made, in words that eased tension on the markets.

The Dow Jones Industrial Average closed 0.42% higher at 15,301.26 while the broader S&P 500 rose 0.41% to 1,710.14. Asian markets broadly rose today on prospects of a Washington deal.

Tokyo gained 0.47% in early trade, while Hong Kong rose 0.68% and Seoul climbed 0.96% higher.

"Everyone just needs to be patient," Reid said, adding that he hoped tomorrow "will be a bright day."

McConnell added, "I share his optimism that we are going to get a result that will be acceptable to both sides."

Their comments were the strongest sign yet that Republicans and Democrats - in the Senate at least - want to end the damaging political crisis that has dented the country's international standing.

The Reid-McConnell effort is clearly the last chance to reach a deal before the US Treasury exhausts its borrowing authority, but its success is far from assured.

Should the Democratic-led chamber coalesce on an agreement, the focus would then shift to whether Republican House Speaker John Boehner can secure sufficient support from his restive conservative coalition in the lower chamber to send it to Obama's desk.

But with progress apparent, and White House sources saying the feeling there mirrored the optimism in the Senate, Obama canceled a meeting he had called with Reid, McConnell, Boehner and Democratic House Minority Leader Nancy Pelosi.

An official said the talks were put off to "allow leaders in the Senate time to continue making important progress towards a solution that raises the debt limit and reopens the government."

The Senate Republicans were to convene later today to review the plan.

The sudden optimism contrasted with Obama's terse tone of a few hours earlier, when he lambasted Republicans and warned of the consequences if a deal was not soon reached.

If Congress does not raise the $16.7 trillion debt ceiling by Thursday, the US government will begin to run out of money and could start defaulting on its obligations.