Obama, Democratic allies to huddle on debt stalemate

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US President Barack Obama called an urgent White House summit with key Democratic allies on Saturday as his Republican foes said fever-pitch efforts to avert a disastrous debt default would soon pay off.

With three days before a midnight Tuesday deadline, Obama summoned Democratic Senate Majority Leader Harry Reid and Democratic House Minority Leady Nancy Pelosi to 11th-hour talks aimed at forging a compromise.

"There are plenty of ways out of this mess. But there is very little time," Obama warned in his weekly address, as the US Congress held a rare and rowdy weekend session full of partisan posturing but little overt signs of progress.

Republican Senate Minority Leader Mitch McConnell said he had spoken with Obama and Vice President Joe Biden and declared himself "confident and optimistic that we're going to get an agreement in the very near future."

"Senator McConnell and I are both confident that we're going to be able to come to some agreement with the White House and end this impasse," Republican House Speaker John Boehner said as they held a joint press conference.

The upbeat words came after the Republican-led House of Representatives voted to kill Reid's proposal for raising the $14.3 trillion US debt limit, a day after the Democratic-held Senate did the same to Boehner's plan.

The House move, which amounted to a preemptive strike on a bill that had yet to get a Senate vote, came after an often angry and partisan debate punctuated by boos and cheers and spiced up with unusually personal broadsides.

When Republican Representative David Dreier said defeating the measure would help leaders of both parties negotiate a path forward, Democratic Representative Sandy Levin denounced the claim as "pernicious nonsense."

Republican Representative and presidential candidate Michele Bachmann accused Obama of snubbing the negotiations while overseeing "insane, never-before-seen-in-the-history-of-this-country levels of spending."

And Pelosi, recalling how Boehner had toughened his own bill to win over conservatives, said the speaker "chose to go to the Dark Side" -- a reference to Star Wars movie franchise villain Darth Vader.

Obama noted that a stalemate could lead ratings agencies to downgrade the sterling Triple-A US debt rating, causing a spike in interest rates that would throw a wrench into the gears of the already sputtering US economy.

The Senate was on course for a 1:00 am (0500 GMT) Sunday procedural vote on Reid's proposal to end the angry stalemate -- but US Senate Republicans vowed in a letter to Reid that they would vote to kill the measure.

Behind closed doors, officials tussled over the contours of a compromise expected to call for spending cuts roughly equal to Obama's request for a $2.4 debt limit increase, no tax hikes, and the creation of a special committee of lawmakers tasked with finding savings in the social safety net.

Key sticking points included the size of spending cuts to be tied to Obama's request for a $2.4 trillion debt limit increase, an effort to put off another political battle on the issue to after the November 2012 elections.

They also included a fight over a mechanism to ensure that lawmakers agree to future spending cuts, notably to cherished but pricey social safety net programs, according to a senior Republican Senate aide.

The US economy hit its debt ceiling 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 Tuesday.

Business and finance leaders have warned that 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.

Absent a deal, the US government will have to cut an estimated 40 cents out of every dollar it spends, forcing grim choices between paying its debt or cutting back on programs like those that help the poor, disabled and elderly.

In a grim warning of what may come if there is no breakthrough in time, US markets fell for a fifth straight day on Friday -- a month of gains wiped out in a week of losses due to poor US growth and the political stalemate.