Top US senator 'cautiously optimistic' of debt deal

US Senate Majority Leader Harry Reid said overnight he was "cautiously optimistic" that the White House and its Republican foes would reach a deal to avert a ruinous debt default.

"We're cautiously optimistic. There are a number of issues yet to be resolved, and we must understand that there's no agreement that has been made. We're optimistic that one can be reached but we're not there yet," said Reid.

With time ticking down to a midnight Tuesday (Washington time) deadline the Democratic leader warned that the polarised US Congress needed a solution "in the next few hours" and said "all sides are aware of this urgency."

Reid said a tentative framework for an agreement would lift the $14.3 trillion US debt limit beyond the November 2012 elections in which President Barack Obama seeks a second term, a key White House demand.

And he said it would include "thoughtful constraints on spending," and stressed that any final agreement "must give financial markets confidence this country won't shirk its obligations now or in the future."

The US economy hit its debt limit on May 16 and has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally - but can only do so through midnight Tuesday.

Business and finance leaders have warned default would send crippling aftershocks through the fragile US economy, still wrestling with stubbornly high unemployment of 9.2 per cent in the wake of the 2008 global meltdown.

Without a deal, the US government would have to cut an estimated 40 cents out of every dollar it spends, forcing grim choices between defaulting or cutting back programs like those that help the poor, disabled and elderly.

Any compromise would still need to clear the divided Democratic-led Senate and Republican-held House of Representatives, where conservatives close to the "Tea Party" movement have called for draconian belt-tightening.