President Barack Obama and top lawmakers groped for a deal to avert a US debt default, as stocks slipped and the IMF feared a 'severe shock' to the world economy in a reckoning one week away.
"We need to make the right decision now, and we need to do it because the economy is on the line," Democratic Senate Majority Leader Harry Reid warned with the polarized US Congress seemingly no nearer to a breakthrough.
Reid and Republican House Speaker John Boehner championed rival strategies to raise the US debt limit, deflate the swollen US budget deficit, and ensure the world's richest nation does not run out of cash to pay its bills by August 2.
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The plans differed in one critical, politically divisive aspect: Reid's would meet Obama's goal of raising the $14.3 trillion debt ceiling enough to avoid another politically painful standoff before his November 2012 re-election bid.
Boehner -- who has flatly rejected Obama's call for tax hikes on the rich and wealthy corporations -- envisioned a two-step process with increases first to February or March 2011, and later to 2013.
"Time is running short and it would be irresponsible for the president to veto this common-sense plan and run the risk of default. I would encourage the Senate to pass this plan and the president to sign it," said Boehner.
Obama, who cancelled a pair of reelection fundraisers amid one of the most high-stakes standoffs of his presidency, renewed his call for tax hikes on the rich and wealthy corporations despite unyielding Republican opposition.
"The best way to take on our deficit is with a balanced approach, one where the wealthiest Americans and the big corporations pay their fair share," he said.
The International Monetary Fund pressed polarized US politicians to raise the US debt ceiling "expeditiously to avoid a severe shock to the US economy and world financial markets" with the deadline now looming large.
The IMF warned that US debt would total 99 percent of the size of the US economy this year and 103.0 percent in 2012, and urged a blend of spending cuts, tax revenue increases, and reductions in cherished social safety net programs.
The warning from the Washington-based institution, viewed skeptically by many in the US Congress, came as US stocks sank and gold soared in the face of the angry political stalemate on raising the $14.3 trillion US debt limit.
US markets fell sharply on opening and recovered somewhat, but in early afternoon trade, the Dow Jones Industrial Average of blue-chip stocks was 0.50 percent down, while the broader S&P 500 had lost nearly 0.34 percent.
Gold and the Swiss franc -- refuges when the dollar and euro look shaky -- both jumped, while the US currency and Asian stocks also slumped, but there were no signs of panic.
Market worries came as US Secretary of State Hillary Clinton promised during a trip to Asia that "intense" wrangling among the White House, its Democratic allies, and Republican foes would reach an 11th-hour compromise.
"I am confident that Congress will do the right thing and secure a deal on the debt ceiling and work with President Obama to take steps to improve our long-term fiscal outlook," the top US diplomat said in Hong Kong.
Clinton chose to make unusual public comments on a domestic political dispute after her foreign counterparts peppered her with "a lot of questions" about the outcome, said US State Department spokeswoman Victoria Nuland
"I think it was important for the secretary to make a strong statement of confidence that our system will produce a good result, not only for the American people but for the world economy as a whole," she said.
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 but can only do so through August 2.
At that point, US leaders will face an agonizing choice about cutting an estimated 40 cents of every dollar in spending and defaulting either on debt payments or on other obligations like government health or retirement benefits.
And finance and business leaders have warned failure to raise the US debt ceiling by then would send shockwaves through the fragile world economy, while Obama has predicted a default would trigger economic "Armageddon."
All sides in the dispute agree cash-strapped Washington must reduce its deficit but disagree on the size and blend of spending cuts and revenue increases as well as on how and whether to slice into the social safety net.
