Rival debt plans in doubt, alternatives sought (Reuters)

WASHINGTON (Reuters) – Republicans and Democrats rushed to rework rival deficit reduction plans on Wednesday, but with the fate of both proposals heavily in doubt top lawmakers pursued a behind-the-scenes compromise to avert a crippling U.S. debt default.

With the deadline less than a week away, global stock markets fell sharply on growing fears that the two sides will fail to break the stalemate. That would mean the United States would not be able to borrow more money after August 2 and could run out of cash to pay all of its bills.

Even if a deal is reached to raise the $14.3 trillion U.S. debt ceiling, a budget plan that flinches from hefty cuts in the deficit may result in a downgrade of America's top-notch credit rating, which could sow financial chaos worldwide.

Against this backdrop, congressional leaders scrambled to find common ground, but complications surrounding their competing proposals could mean efforts to forge a compromise will go right down to the wire.

The prospect of a quick resolution suffered another blow when a vote on a deficit reduction plan offered by House of Representatives Speaker John Boehner, the top Republican in Congress, was pushed back to Thursday from Wednesday amid a mutiny by some fiscal conservatives in his own party as well as stiff opposition from Democrats.

A separate plan crafted by Senate Majority Leader Harry Reid, a Democrat, also faced a setback on Wednesday when the non-partisan Congressional Budget Office said the proposal would cut $2.2 trillion from deficits, about $500 billion less than Democrats had claimed.

Boehner rushed to revise his two-step proposal after a CBO analysis found it would cut spending by $350 billion less than the $1.2 trillion over 10 years he had claimed. Obama opposes it because it would extend borrowing authority only until early next year, risking a rerun of the debt impasse during the 2012 election campaign when the president is seeking a second term.

Amid the political brinkmanship, the two parties have been having ongoing conversations about how to break the impasse, Democratic Senator Kent Conrad said.

"One thing I'm quite confident of is we are not going to default. Leaders on both sides recognize now that that would be a disaster," Conrad said.

But weeks of acrimonious dealings may make it hard to narrow the partisan differences. Republicans control the House and President Barack Obama's Democrats control the Senate.

POTENTIAL FOR COMPROMISE

Signaling a potential for compromise, Reid said when asked if the two plans were the only options: "We can change any one of them very easily." But Reid said every Democratic senator would vote against the current Boehner proposal if it is passed by the House and goes to the Senate.

While Democrats and Republicans publicly were pushing their respective proposals, bipartisan talks quietly continued.

Senate Democratic aides said they hoped that once Boehner's plan is killed -- either by the House or Senate -- then support will grow for Reid's one-step remedy, which Obama backs.

As currently written, Reid's approach would save more than the Republican plan and would extend the debt limit beyond the November 2012 elections. "More people will turn their attention to our bill and give it a second look" and "some version" of it would be put to a vote, a Democratic aide said.

Meanwhile, the gridlock dragged global stocks down on Wednesday, particularly in Europe. Major U.S. exchanges slipped by 1 percent or more on nervousness over unfavorable company news and the faltering debt talks in Washington.

Worried investors shifted funds into traditional safe havens gold and the Swiss franc, which both rose to record highs in dollar terms.

Still, there have been no signs of panic in markets because most investors expect a deal to be struck by the deadline.

Adding to that view, Deven Sharma, president of rating agency Standard & Poor's, told a congressional committee the ratings agency does not think the United States will default on its debt. "Our analysts don't believe they would," he said.

(Additional reporting by Deborah Charles and Donna Smith; Writing by Matt Spetalnick; Editing by Will Dunham)

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Rival debt plans pushed as deadline looms (Reuters)

WASHINGTON (Reuters) – Lawmakers were locked in a standoff on Monday over dueling debt plans that offered little prospect for compromise, increasing the threat of a ratings downgrade and national default that could sow chaos in global markets.

Little more than a week before the August 2 deadline to raise the $14.3 trillion debt ceiling, President Barack Obama's Democrats and their Republican rivals pursued separate budget proposals in Congress, with no clear path to bring them together.

The impasse rattled investors worldwide, sending stocks and the dollar down and pushing gold to a record high, but falling far short of the panicky sell-off that some politicians in Washington had feared after weekend talks broke down.

Details emerged of the House of Representatives Republicans' two-stage deficit reduction plan that would start with an initial $1.2 trillion in savings over 10 years. It is sure to be rejected by Obama because it would raise the U.S. debt limit for only a few months, meaning the issue likely would have to be revisited early next year.

Meanwhile, congressional Democrats detailed their competing plan for $2.7 trillion in deficit reduction over the next decade but with a debt limit increase that would carry through the November 2012 presidential and congressional elections. Republicans appear unlikely to support this approach.

Republicans control the House and Democrats control the Senate.

Market players warned of a damaging downgrade of the United States' gold-plated AAA rating if the stalemate goes down to the wire.

Neither plan being discussed by lawmakers may be enough to avert a downgrade by ratings agency S&P, which has indicated it wants to see a $4 trillion deficit reduction plan over 10 years. The risk of a lower U.S. credit rating has become the markets' main worry.

Joining a growing chorus of global concern as the world's largest economy showed signs of legislative dysfunction, the International Monetary Fund urged swift U.S. action on its debt to avert broad negative fallout.

Obama and congressional leaders have tried to reassure global markets that the country will be able to service its debt and meet other obligations after August 2, when the United States will run out of money to pay all of its bills.

Ratings agencies have warned that even if Congress raises the debt ceiling and averts a default, they may still strip the United States of its Triple-A credit rating if lawmakers fail to agree on deeper long-term budget cuts.

Republican House Speaker John Boehner's plan would raise the debt limit in stages, forcing Congress to confront the politically painful issue again before the November 2012 election, when Obama is seeking a second term.

Boehner will push for legislation to cut $1.2 trillion in spending over 10 years and provide a short-term, $1 trillion increase in the government's borrowing limit but include no tax increases. Obama has said he opposes a short-term debt limit hike and instead wants about $2.4 trillion in new borrowing authority, which would extend through 2012.

Senate Majority Leader Harry Reid, a Democrat, laid out a $2.7 trillion spending-cut plan that includes large savings from domestic and defense programs to try to break the impasse and would provide enough borrowing authority to meet needs through 2012.

It would include $1.2 trillion in savings that Democrats say Republicans already had agreed to.

"The Republicans are more interested in embarrassing the president than doing what is right for the country," Reid told reporters. "We should not let these extremists dictate the outcome of this debate or the direction of our country. The time for ideological extremism should end."

(Additional reporting by Richard Cowan, Caren Bohan, Alister Bull, Laura MacInnis and Deborah Charles in Washington, Ryan Vlastelica in New York, Emily Kaiser in Singapore, Yoo Choonsik in Seoul; Editing by Will Dunham)

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