US political rivals are cautiously optimistic about the chances of raising the $14.3t debt limit by Tuesday and averting possible default.
Republican Senate leader Mitch McConnell said the sides were “very close” to a $3t deal after talks with Vice-President Joe Biden.
Senior Senate Democrat Richard Durbin spoke of “a more positive feeling”.
But both the Democrats and the Obama administration warned that the details had still to be agreed.
America limits by law the total amount of debt its government can run up in order to pay its bills, and the Obama administration is under mounting financial pressure.
According to the Associated Press news agency, a compromise plan now emerging would increase the debt limit in return for spending cuts of about $1t initially.
A joint committee of members of Congress would then decide a larger package of cuts as the price for a second raise in the limit after next year’s presidential election.
In a sign of the level of anxiety over the issue, troops in Afghanistan asked Admiral Mike Mullen if they would be paid.
The admiral, who as chairman of the joint chiefs of staff is on a visit to southern Afghanistan, said he could not tell if the US failed to raise the debt limit.
“We have to get this solved,” White House senior adviser David Plouffe told NBC television today. “Today is obviously a critical day.”
Democratic Senator Chuck Schumer said many issues still needed to be settled, although there was “relief” in Congress and the White House because serious negotiations were now making headway.
Democrats and Republicans have so far rejected each others’ proposals in the two houses of the divided US Congress.
The negotiations appeared to move one step today when the Democrat-dominated Senate narrowly rejected the debt ceiling bill proposed by the Democratic Senate Majority Leader, Harry Reid, and backed by President Barack Obama.
The bill would have cut $2.2t from deficits and raised the debt ceiling by $2.7t, meaning the issue would not have to be revisited until after the 2012 elections.
But its defeat paves the way for a cross-party bill which will probably feature elements of the Reid plan, analysts say.
“The arrangement that is being worked on with the Republican leader and the administration and others is not there yet,” Reid said on the Senate floor after the vote.
“We’re hopeful and confident it can be done.”
The Republican-held House of Representatives rejected the Reid bill 246-173 on Saturday afternoon.
House Republicans had passed their own plan, drawn up by speaker John Boehner, to make some $900bn in spending cuts and raise the debt ceiling by a similar amount.
But the Boehner plan would require another vote next year, in the midst of the presidential election campaign, and proposes a so-called “balanced budget amendment” to the US constitution.
The White House and the Senate leadership are opposed to both of these proposals, and the Boehner plan was rejected, in turn, by the Senate. (BBC)
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