WASHINGTON – Hopes rose on Thursday for a breakthrough in the political impasse crippling Washington after "constructive" talks between President Barack Obama and top Republicans on a short term fix to stave off a debt default.
After days of deadlock, Republicans proposed a six-week extension of US borrowing authority in return for an agreement by Obama to negotiate on a budget that would restart federal operations, which ground to a halt on October 1.
The White House said Obama would be open to a short-term debt ceiling hike to avoid the United States defaulting on its debts after an October 17 deadline. But aides said he would prefer a longer term extension and would not accept any measure which contained partisan conditions to hold him to "ransom".
The president also wants Republicans to pass a temporary budget to reopen the government, bringing hundreds of thousands of federal workers back to their desks, before he gets into detailed budget negotiations.
Obama sat down for 90 minutes at the White House with House Republican leaders, who quickly returned to Capitol Hill, as their second-in-command Eric Cantor offered an upbeat report on the talks to reporters.
"It was a very useful meeting, we had a constructive conversation," Cantor said, adding that both sides would consult aides and continue discussions later on Thursday evening.
The White House was more measured, making clear that Obama was still seeking a deal that would both reopen the government and extend the debt ceiling.
"After a discussion about potential paths forward, no specific determination was made," a statement said.
"The President looks forward to making continued progress with members on both sides of the aisle."
The manoeuvring appeared to indicate that both sides were seeking an exit to the crisis.
The talks now appear to be focusing on a process to raise the debt ceiling, start long term budget talks and then reopen the government.
If there is not extension to the debt ceiling by October 17, the Treasury would run out of money and could begin defaulting on US obligations for the first time in history.
Before Obama met Republicans, he huddled with top Senate Democrats. Asked whether he would negotiate with Republicans to open the government, Senate Majority leader Harry Reid replied "not going to happen" and indicated Obama shared his view.
Hopes for a possible deal sparked optimism on Wall Street.
The Dow Jones Industrial Average shot up more than 300 points or 2.2 per cent and the tech-heavy Nasdaq exchange was also up two per cent.
Earlier, Treasury Secretary Jacob Lew warned that a US default would cause economic chaos.
"If Congress fails to meet its responsibility, it could be deeply damaging to the financial markets, the ongoing economic recovery, and the jobs and savings of millions of Americans," Lew told the Senate Finance Committee.
Other countries were closely watching the unfolding crisis, fearful of reverberations in their economies. -- AFP