President Barack Obama held dramatic late-night talks but failed to break a budget impasse with Republicans, though he said the two sides were creeping towards a deal to avert a government shutdown.
Obama met Republican House of Representatives Speaker John Boehner and Democratic Senate leader Harry Reid, seeking to defuse a hugely significant showdown before a midnight Friday deadline for federal funding to run dry.
If no deal is reached, vast parts of the US government will be shuttered, forcing combat troops to go without paychecks and national parks to close in a shutdown which could also damage the fragile economic recovery.
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"I thought the meetings were frank, they were constructive and what they did was narrow the issues and clarify the issues that are still outstanding," Obama told reporters after the talks broke up after 90 minutes.
"I remain confident if we are serious about getting something done we should be able to complete a deal and get it passed and avert a shutdown."
"That is going to require a sufficient sense of urgency from all parties involved," said Obama, who instructed his negotiators to meet Republicans through the night and report back on Thursday morning.
"If we haven't made progress, we are going to go back at it again. We are going to keep on pounding away at this thing.
"I am absolutely convinced we can get this done. There is no reason why we should have a government shutdown."
The talks, designed to pull both sides back from the political brink and fund the government through October 1, came after Obama earlier told Republicans to "quit playing games" while they questioned his leadership.
But in a sign tempers may be cooling, Boehner and Reid later appeared together before reporters outside the White House after leaving the talks.
"We did have a productive conversation this evening. We do have some honest differences but I do think we made some progress," said Boehner.
"But I want to reiterate there is no agreement on a number ... there is an intent on both sides to continue to work together to try to resolve this.
"No one wants the government to shut down."
Neither side would identify where the differences remained.
Republicans however are demanding sweeping budget cuts in domestic spending and foreign aid and policy changes while Obama has offered cuts, but has dug in his heels at cutting crucial education and environmental programs.
The faceoff is the most overt clash yet between Obama and Republicans who captured the House in an electoral rout in November, and could go a long way to defining the early terrain of the president's 2012 reelection bid.
Earlier, officials said around 800,000 federal workers could be temporarily laid off if the government shuts down, and warned the economy could get a hit, just as growth is slowly picking up.
"At a time when you're struggling to pay your bills and meet your responsibilities, the least we can do is meet our responsibilities to produce a budget," Obama said earlier in Pennsylvania.
Boehner had earlier sharpened his tone after a meeting of the Republican House caucus that included conservative budget hawks demanding huge spending cuts from party leaders who must eventually find a way to make a deal with Senate Democrats on a budget.
"I like the president personally, but a president needs to lead -- he didn't lead on last year's budget, and he clearly isn't leading on this year's budget," Boehner said.
Obama said a shutdown could halt approvals of home loans backed by the government, shut off small business grants and close national parks.
Aides said the shutdown would stop paychecks for troops abroad, though they would eventually get paid in full once a shutdown was over.
Paper tax refunds would be delayed, but electronic filing and rebates would continue to operate. US national parks and Smithsonian Institution museums in Washington would also be shut.
Washington would meanwhile lose its annual cherry blossom festival, a hit with tourists.
However, many government operations, including US military mission overseas would continue and the Department of Homeland Security functions would go on as they are deemed vital to national security, a senior official said.
Democrats complained Wednesday that Boehner had broken an agreement in principle to cut $33 billion and was now seeking $40 billion, while the speaker's office denied there had ever been a deal on the first figure.
