U.S. Senate leaders still in talks as debt limit imminent

Reuters

* Senate plan would extend borrowing authority to Feb. 7

* Treasury says government hits debt limit on Thursday

* Two plans by House Republicans collapse amid opposition

* Fitch Ratings warns it could cut U.S. credit rating

By Richard Cowan and Amanda Becker

WASHINGTON, Oct 15 (Reuters) - With the United States just aday away from exhausting its ability to borrow money, U.S.Senate leaders were still discussing a deal late on Tuesdayaimed at raising the debt limit and reopening federal agenciesthat have been closed for two weeks.

Senate aides said a deal was close but details remained tobe worked out, and earlier hopes that a deal could be announcedlate on Tuesday were not met.

The U.S. Treasury says the government will bump up againstits $16.7 trillion borrowing limit on Thursday, leaving littleroom for error and raising the risk the government will fail topay its bills and creditors.

Even once a deal is reached, it must clear the full Senateand possible procedural snags in that chamber on Wednesdaybefore moving to the fractious House of Representatives that wasunable to produce its own deal on Tuesday.

Amid the chaos, Fitch Ratings warned it could cut thesovereign credit rating of the United States from AAA, citingthe political brinkmanship over raising the federal debtceiling.

Senate Majority Leader Harry Reid and Republican leaderSenator Mitch McConnell were discussing ways of avoidingprocedural hurdles that could slow down the measure, DemocraticSenator Heidi Heitkamp told CNN late Wednesday.

"This is now back on track," she said, its fate dependent on"whether the House and Senate play well together."

As previously outlined, the Senate deal under discussionwould extend U.S. borrowing authority until Feb. 7, although theTreasury Department would have tools to temporarily extend itsborrowing capacity beyond that date if Congress failed to actearly next year.

The bill also would fund government agencies until Jan. 15,ending a partial government shutdown that began with the newfiscal year on Oct. 1.

It was another roller-coaster day of fiscal negotiations inCongress that saw two separate legislative efforts by the Housedie before they could even be debated by the full chamber. Themeasures were buried after it became apparent that too manyRepublicans were rebelling against their leaders' bills.

PASSAGE SCENARIOS

Aides said Reid and McConnell were looking at two possibleways of speeding the legislation through the Senate, which oftencan get bogged down for several days with procedural hurdles.

If such delays were allowed, they could throw the U.S. intodefault by making passage of a bill impossible by Thursday.

Under one scenario, all 100 senators would agree to letDemocrats schedule quick votes to pass the bill. That would meanthat Tea Party faction firebrands, such as Republican SenatorTed Cruz, would give up their rights to delay a vote.

Cruz has not publicly announced his intentions but someSenate aides think that the Texas freshman with presidentialaspirations has been sending positive signals in recent days.

Cruz and fellow Tea Party activists late last month delayedpassage of a government funding bill as they demanded majorchanges to Obama's landmark healthcare law.

The deadlock led to federal agency shutdowns as Obama andhis fellow Democrats stood firm against changing the law.

The other scenario would have the House send a formal"message" to the Senate to pave the way for quick Senate action,according to a Senate aide who asked not to be identified.

Again, it was not clear whether House Republicans would goalong with that option.

BOEHNER'S TOUGH DECISION

Either way, House Speaker John Boehner will have to decidewhether to allow passage of a bill that many of his fellowRepublicans might oppose, a decision that could impact the topRepublican's political future.

House Republicans twice tried to come up with a newcompromise but failed to satisfy Obama, Senate Democrats or TeaParty conservatives.

The first House Republican attempt was shot down in aclosed-door meeting that had begun with members singing the hymn"Amazing Grace."

The second plan was scuttled hours before it was expected tohit the House floor for a vote after the influential HeritageAction for America, a conservative group, urged a "no" votebecause it did not do enough to stop Obama's healthcare law.

If Congress fails to reach a deal by Thursday, checks wouldlikely go out on time for a short while for everyone frombondholders to workers who are owed unemployment benefits. Butanalysts warn that a default on government obligations couldquickly follow, potentially causing the U.S. financial sector tofreeze up and threatening the global economy.

The U.S. Treasury Department seized on Fitch's downgradethreat to press Congress. "The announcement reflects the urgencywith which Congress should act to remove the threat of defaulthanging over the economy," a Treasury spokesperson said.

Numerous polls show Republicans have taken a hit in opinionpolls since the standoff began and the government shutdown. AWashington Post/ABC News poll released on Monday found that 74percent of Americans disapprove of the way congressionalRepublicans have handled the standoff, compared with a 53percent disapproval rating for Obama.

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