Hopes rise for deal on US political crisis as talks continue

WASHINGTON (AFP) - Hopes rose 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 Mr Obama to negotiate on a budget that would restart federal operations, which halted on Oct 1.

Talk of a possible deal sparked optimism on Wall Street, with the Dow Jones Industrial Average gaining more than 300 points or 2.2 percent, and the tech-heavy Nasdaq exchange was also up over two percent.

The White House said on Thursday that Mr Obama would be open to a short-term debt ceiling hike to avoid the United States defaulting on its debts after an Oct 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.

Mr Obama sat down for 90 minutes at the White House with House Republican leaders, who quickly returned to Capitol Hill where second-in-command Eric Cantor offered an upbeat report on the talks, despite no deal yet being struck.

"It was a very useful meeting, we had a constructive conversation," Mr Cantor told reporters, adding that both sides would consult aides and continue discussions later on Thursday evening.

The White House was more measured, making clear that Mr 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."

House Budget Committee chairman Paul Ryan, the Republican vice presidential nominee in 2012 and a key figure in any upcoming deal on broader fiscal issues, sounded encouraged that the two sides were into the nitty-gritty of negotiations, even though the meeting was inconclusive.

"He didn't say no, he didn't say yes," Mr Ryan said of Mr Obama's reaction to the Republican offer.

Senate Republicans are due to meet with Mr Obama on Friday.

"There is a light at the end of the tunnel here," Republican Senator Rob Portman said.

The maneuvering appeared to indicate that both sides were seeking an exit to the crisis, particularly with Republicans bound to be feeling the heat from Americans fed up with the impasse.

A new NBC News/Wall Street Journal poll on Thursday showed that a large majority of Americans - 63 percent - say they believe failure to raise the debt ceiling would pose "a real and serious problem," compared to just 15 percent who said it would not.

If there is no extension to the debt ceiling by Oct 17, the Treasury would run out of money and could begin defaulting on US obligations for the first time in history.

Before Mr 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 Mr Obama shared his view.

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," Mr Lew told the Senate Finance Committee.

Other countries were closely watching the unfolding crisis, fearful of reverberations in their economies.

Mr Gang Yi, deputy governor of China's Central Bank warned that Washington should have the "wisdom" to overcome the gridlock as soon as possible.

"The market doesn't like uncertainty and we watch that drama very closely," he said, speaking in a CNN-hosted panel discussion on the sidelines of the IMF/World Bank annual meetings in Washington.

China is the largest foreign holder of US government debt.

IMF chief Christine Lagarde said a six to eight week temporary debt limit extension would be welcome but "much longer would be a lot better" for the world economy.

Mr Haruhiko Kuroda, governor of the Bank of Japan, said in New York meanwhile that he did not expect a US debt default.

Mr Obama has said he is willing to talk to Republicans on a long-term budget deal and other fiscal issues, but only when government is reopened and the debt ceiling is lifted.

Republican lawmakers said reaction in their caucus to House Speaker John Boehner's plan was mixed.

"What the speaker is trying to do is just to get this man to sit down and talk to us," congressman Lou Barletta told AFP, referring to Mr Obama.