* House Speaker Boehner says Republicans will not block deal
* Agreement extends borrowing authority until February
* Both chambers expected to vote Wednesday
By Richard Cowan and Thomas Ferraro
WASHINGTON, Oct 16 (Reuters) - U.S. Senate leaders announceda deal on Wednesday to end a political crisis that partiallyshut down the federal government and brought the world's biggesteconomy close to a debt default that could have threatenedglobal financial calamity.
The deal, however, offers only a temporary fix and does notresolve the fundamental issues of spending and deficits that divide Republicans and Democrats. It funds the government until Jan. 15, so Americans face the possibility of another governmentshutdown early next year.
U.S. stocks surged, nearing an all-time high, on news of thedeal, which must still be approved by vote in the Senate and theHouse of Representatives. But trading volumes remained low,underscoring how the political brinkmanship in Washington hasunnerved Wall Street.
A stand-off between Republicans and the White House overfunding the government forced the temporary lay-off of hundredsof thousands of federal workers from Oct. 1 and created concernthat crisis-driven politics was the "new normal" in Washington.
Senator John McCain, whose fellow Republicans triggered thecrisis with demands that President Barack Obama's signature"Obamacare" healthcare law be defunded, said on Wednesday thedeal marked the "end of an agonizing odyssey" for Americans.
"It is one of the most shameful chapters I have seen in theyears I've spent in the Senate," said McCain, who had repeatedlywarned Republicans not to link their demands for Obamacarechanges to the debt limit or government spending bill.
House Speaker John Boehner said Republicans in the Housewould not block the Senate plan. Both chambers were expected tovote later in the day, clearing the way for Obama to sign itinto law before Thursday, when the Treasury says it will exhaustits borrowing authority.
The deal would extend U.S. borrowing authority until Feb. 7,although the Treasury Department would have tools to temporarilyextend its borrowing capacity beyond that date if Congressfailed to act early next year. The deal would fund governmentagencies until the middle of January.
The agreement includes some income verification proceduresfor those seeking subsidies under the healthcare law, butRepublicans surrendered on their attempts to include otherchanges, including the elimination of a medical device tax.
With Republicans in the House of Representatives divided onthe way forward, White House spokesman Jay Carney said "we arenot putting odds on anything" when asked about a House vote onthe Senate plan.
RACE AGAINST TIME
While analysts and U.S. officials say the government willstill have roughly $30 billion in cash to pay many obligationsfor at least a few days after Oct. 17, the financial sector maybegin to seize up if the deal is not finalized in both chambers.
The planned votes signal a temporary ceasefire betweenRepublicans and the White House in their latest no-holds-barredstruggle over spending and deficits that has at times paralyzedboth decision-making and basic functions of government.
The political dysfunction has worried U.S. allies andcreditors such as China, the biggest foreign holder of U.S.debt, and raised questions about the impact on America'sprestige. The Treasury has said it risks hurting the country'sreputation as a safe haven and stable financial center.
Senate Majority Leader Harry Reid and Republican leaderMitch McConnell announced the fiscal agreement on the Senatefloor, where it was expected to win swift approval after a mainRepublican critic of the deal, Senator Ted Cruz of Texas, saidhe would not use procedural moves to delay a vote.
The deal is seen as a victory for Obama, who held firm andrefused to negotiate on changes to Obamacare, but a defeat forRepublicans, who are suffering a backlash from the Americanpublic, according to public opinion polls.
It was unclear if Boehner's leadership position will be atrisk in the fallout. But several Republican lawmakers suggestedhe may have strengthened his standing among the rank-and-file,who applaud him for standing with them.
"The Speaker got a standing ovation," after tellinglawmakers during a closed-door meeting that he would put theSenate bill on the House floor, said Representative David Nunesof California, who had opposed the government shutdown strategyof his colleagues.
"He just said we live to fight another day and we all needto go out and vote for it," Nunes said.
The fight over Obamacare rapidly grew into a brawl over thedebt ceiling, threatening a default that global financialorganizations warned could throw the United States back intorecession and cause a global economic disaster.
"Even though the market is moving up, this is a realhistoric event that is happening here so there is pause andconcern," said Frank Davis, director of sales and trading at LEKSecurities in New York.
"You are seeing a lack of activity because it's hard toinvest in a market where you don't know what's around thecorner."
The Dow Jones industrial average and the Standard &Poor's 500 Index ended the day up around 1.3 percent.
Fitch Ratings had warned on Tuesday that it could cut theU.S. sovereign credit rating from AAA, citing the politicalbrinkmanship over raising the debt ceiling.
The deal announced on Wednesday would basically give Obamawhat he has demanded for months: A straight-forward debt limithike and government funding bill.
A resolution to the crisis cannot come soon enough for manycompanies. American consumers have put awaytheir wallets, at least temporarily, instead of spending onbig-ticket items like cars and recreational vehicles.
"We're sort of 'crises-ed' out," said Tammy Darvish, vicepresident of DARCARS Automotive Group, a family-run company thatowns 21 auto dealerships in the greater Washington area.
Many political pundits and Democratic Party politicians havepredicted for weeks that a faction of Republicans in the Housewould drag out the crisis before making a last-minute deal.
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