US braces for debt deal vote amid default jitters

Republican House Speaker John Boehner was to put his two-step plan to raise the nation\'s $14.3 trillion debt limit to the House of Representatives, even though most senators have vowed to block it in the Senate.

With only five days to go before the world\'s richest nation hits its debt ceiling on August 2 and can no longer pay its bills, Democrats and Republicans dug in, although there were hints of intense behind-the-scenes negotiations.

Stock markets remained jittery worried by the global dangers if the US defaults for the first time on its debt obligations, or if ratings agencies carry through with a threat to downgrade its coveted Triple-A credit rating.

Boehner\'s plan would shave $915 billion off the national deficit over 10 years in return for hiking the debt ceiling by some $900 billion.

He also lays out a second debt limit hike in early 2012, at the start of what is likely to be a bitter campaign for the November presidential elections.

President Barack Obama, who will be fighting for a second term in the 2012 White House race, has said he will oppose a two-step increase of the debt ceiling, arguing it would only reopen the bitter debate in six months time.

White House officials said he would veto Boehner\'s bill, and admitted Wednesday for the first time they are working on a back-up plan to keep the country running if in the worst case scenario the US is forced into default.

Some 53 senators in the 100-seat Senate also signed a letter to Boehner late Wednesday saying his bill, even if it passes the House, would be dead-in-water on arrival in the upper chamber.

"A short-term extension like the one in your bill would put America at risk, along with every family and business in it," they wrote.

"Your approach would force us once again to face the threat of default in five or six short months," they said, adding such a situation would be "disastrous."

White House communications director Dan Pfeiffer hit out in a message on Twitter at what he called "an exercise in interesting, but pointless political theater."

"At some point, House leadership needs to focus on solving the problem so US doesn\'t default. Clock is ticking and they are hurting the econ," he added.

European and Asian markets slumped on Thursday as the deadline approached.

But in a glimmer of good news for the US, stock markets in New York opened higher on Thursday as an unexpected improvement in jobless claims dispelled gloom about the debt-ceiling debacle.

After four straight days of losses, the Dow Jones Industrial Average gained 18.43 points (0.15 percent) to reach 12,320.98 after the first half-hour of trading.

Democrats have rallied behind a rival plan crafted by Senate Majority Leader Harry Reid but unlikely in its current form to pass the House, amid quiet efforts behind closed doors to plot an escape from a dangerous fiscal trap.

"Magic things can happen here in Congress in a very short period of time, under the right circumstances," Reid told reporters, declining to elaborate.

His plan would cut spending by $2.2 trillion over 10 years, and raise the debt ceiling until after the November 2012 elections.

But even a breakthrough deal to lift the debt limit might not spare the United States from losing its sterling Triple-A debt rating, a downgrade that could raise interest rates across the already ailing US economy, analysts said.

"There has to be a credible plan to reduce the debt burden as well as the deficit levels," said Standard & Poor\'s president Deven Sharma.

The Boehner and Reid plans overlapped in key ways -- slicing spending over 10 years by more than the debt ceiling hike they envisioned, shunning Obama\'s call for tax revenue increases on the rich and wealthy corporations, and creating special lawmaker committees to craft future cuts.

Senate Finance Committee Max Baucus predicted an endgame that would see lawmakers "modify" Reid\'s bill to make it more appealing to Republicans ahead of a scheduled month-long August break.

Washington hit its debt ceiling on May 16 but has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally.

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