Hopes rise for deal on US political crisis

Washington (AFP) - Hopes rose Thursday 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 Obama to negotiate on a budget that would restart federal operations, which ground to a halt on October 1.

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

Obama sat down for 90 minutes at the White House with House Republican leaders, who quickly returned to Capitol Hill, as their second-in-command Eric Cantor offered an upbeat report on the talks to reporters.

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

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

The maneuvering appeared to indicate that both sides were seeking an exit to the crisis.

The talks now appear to be focusing on a process to raise the debt ceiling, start long term budget talks and then reopen the government.

If there is not extension to the debt ceiling by October 17, the Treasury would run out of money and could begin defaulting on US obligations for the first time in history.

Before 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 Obama shared his view.

Hopes for a possible deal sparked optimism on Wall Street.

The Dow Jones Industrial Average shot up more than 300 points or 2.2 percent and the tech-heavy Nasdaq exchange was also up two percent.

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," Lew told the Senate Finance Committee.

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

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.

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

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

Republican lawmakers said reaction in the party caucus to 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," said congressman Lou Barletta, referring to Obama.

Representative Kevin Brady clarified that Boehner's offer was not a mere clean debt ceiling hike.

"We provide a six-week hard date extension of the debt ceiling on the condition that both parties name budget conferees, and that the president come to the table to negotiate re-opening the government, as well as finding a final solution to the debt ceiling."