US seeks elusive compromise to escape debt debacle

WASHINGTON,  (Reuters) – Top Republicans and  Democrats worked behind the scenes yesterday on a compromise  to avert a crippling U.S. default, looking to salvage a  last-minute deal from rival debt plans that have little chance  of winning congressional approval on their own.

With financial markets increasingly on edge, the White  House said it saw no alternative to striking a deal to raise  the government’s borrowing limit by an Aug. 2 deadline to allow  the world’s largest economy to keep paying all of its bills.

“People keep looking for off-ramps. They don’t exist,”  White House spokes-man Jay Carney told reporters, saying the  government would be “running on fumes” after the deadline  unless the limit was raised.

Even if a deal is reached to lift the $14.3 trillion debt  ceiling, a budget plan that flinches from hefty cuts in the  deficit may result in a downgrade of the top-notch U.S. credit  rating. This would push up U.S. borrowing costs and rattle  global investors.

The faltering moves to break the deadlock are weighing on  markets. Along with the uncertainty, Wall Street was hit by  weak earnings and lackluster economic data, suffering its worst  day in eight weeks.

“The market is beginning to show real concerns in terms of  a default. I don’t think it’s going to happen … (but) are we  headed for a downgrade? That is becoming more of a possibility  as each day goes by,” said Peter Cardillo, chief market  economist at Avalon Partners in New York.

The U.S. dollar rebounded after a sell-off this week but  policy makers in countries from Japan to France fretted over  how a crisis of confidence in U.S. solvency could spill into  the international economy.

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