UPDATE 1-US budget talks should solve funding for year-W.House

Mon Feb 28, 2011 11:21am EST

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* White House says budget talks moving in right direction

* Congress should avoid a series of stopgap funding bills (Adds quotes, details, background)

WASHINGTON Feb 28 (Reuters) - Congressional negotiations to avoid a U.S. government shutdown are heading in the right direction but must focus on securing funding through the rest of the fiscal year, the White House said on Monday.

The government will run out of money on Friday -- bringing non-essential services to a halt and laying off hundreds of thousands of federal workers -- unless U.S. lawmakers craft a compromise over spending cuts to keep funding operations.

"We're pleased that there seems to be some progress and we think we're moving in the right direction. But this is still a process that is being worked up on (Capitol) Hill," White House press secretary Jay Carney told reporters.

"One thing that is paramount in our mind is that whatever actions we take do not in any way harm the economy," said Carney, repeating a theme President Barack Obama has emphasized when talking about curbing the massive U.S. budget deficit.

The Republicans in the U.S. House of Representatives, who are pushing for steep cuts in government spending, have proposed a stopgap bill to keep the money flowing for two more weeks. This would create time to hammer out a deal to fund the government through the remaining fiscal year to Sept. 30.

Obama's Democrats in the Senate, who warn cutbacks that go too far could undermine the U.S. economic recovery, have indicated the $4 billion in spending reductions laid out by House Republicans in their plan may be acceptable. Republicans control the House and Democrats lead in the Senate.

The White House said lawmakers should seek common ground to tackle funding for the whole year, rather than falling back on a series of stopgap bills that could harm confidence.

"We want to make sure that this continuing resolution that is worked out allows enough time for the negotiations that need to take place to produce a continuing resolution that takes us through the whole fiscal year," Carney said. The legislation to fund the government is called a continuing resolution.

"If we keep returning to this process every couple of weeks that will be bad for the economy because of the uncertainty it creates," he said. (Reporting by Steve Holland and Alister Bull; Editing by Eric Beech)

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