Dismal jobs picture complicates debt talks

WASHINGTON (Reuters) - Dismal unemployment figures on Friday complicated efforts to avert a looming U.S. debt default, and a top Republican said negotiators were not close to a deal that would ensure continued borrowing.

Tamping down expectations that Democrats and Republicans could reach agreement over the weekend, House of Representatives Speaker John Boehner said the two sides must overcome serious disagreements on taxes and spending cuts.

"It's not like there's some imminent deal about to happen," Boehner told a news conference. "This is a Rubik's Cube that we haven't quite worked out yet."

Partisan finger-pointing erupted anew after a government report showed the unemployment rate rose to 9.2 percent in June, dousing hopes that the economy is picking up steam.

Boehner, the top Republican in Congress, and President Barack Obama, a Democrat seeking reelection in 2012, are trying to craft a sweeping budget deal that would ensure the national debt remains at a sustainable level by cutting $4 trillion from budget deficits over 10 years.

That would give lawmakers political cover to raise the government's debt ceiling of $14.3 trillion before August 2, when the country is due to run out of borrowing capacity. Failure to act soon, some warn, could push the United States back into recession and send shock waves through the global economy.

Democrats and Republicans remain at odds over what elements should be part of the deal. Democrats are pushing for roughly $1 trillion in new tax revenue, while Republicans want to restructure popular benefit programs.

Negotiators might scale back a tax break for companies that provide health benefits to their workers, Representative Sander Levin, the top Democrat on the tax-writing Ways and Means Committee, told Reuters. That would dwarf other revenue-generating elements on the table but could prompt more employers to stop offering health coverage.

The uncertainty in the debt-ceiling debate is hurting American companies and the overall economy, Obama said.

"The sooner we get this done, the sooner that the markets know that the debt limit ceiling will have been raised and that we have a serious plan to deal with our debt and deficit, the sooner that we give our businesses the certainty that they will need in order to make additional investments to grow and to hire," he said at the White House.

MEETING ON SUNDAY

For now, financial markets are showing little concern.

In fact, investors beat a path to the U.S. Treasury's sale of $28 billion in four-week bills on Wednesday, elbowing each other for the chance to buy debt paying zero interest and maturing on August 4 -- two days after the deadline.

Obama, Boehner and other congressional leaders are due to meet at the White House on Sunday at 6 p.m. EDT, with staffers working through the weekend to lay out options.

The session could see some hard bargaining but is not likely to produce a final deal, White House spokesman Jay Carney said.

The Republican-led House canceled a planned break during the week of July 18, which could make it easier for Congress to pass a deal by August.

Boehner faces a delicate balancing act. With dozens of conservative House Republicans expected to vote against any compromise, he will likely have to rely on Democratic votes to get a deal passed. That means some revenue increases may have to be part of the package, which could imperil Boehner's standing among conservative activists.

House Democratic Leader Nancy Pelosi said she was optimistic a deal can be reached after meeting with Obama on Friday morning, but she insisted that the popular Social Security retirement program should not be part of the deal.

"We are not going to reduce the deficit or subsidize the tax cuts for the rich on the backs of America's seniors," Pelosi said.

Prospects probably were not helped by Friday's disappointing jobs report, which showed employers hired the fewest number of workers in nine months.

Obama is eager to bring the jobless rate down ahead of the November 2012 election, which will largely hinge on how Americans feel about the economy.

Republicans said his policies have made businesses reluctant to hire. A budget deal that includes tax hikes could make things worse, they said.

"It just does not make sense for Americans to suffer under higher taxes in an economy like this," said Representative Eric Cantor, the No. 2 House Republican.

Democrats fear the sharp spending cuts that Republicans want would further weaken the economy, and they are pushing for new tax cuts and spending measures to boost employment.

(Additional reporting by Thomas Ferraro, Caren Bohan, Laura MacInnis and Matt Spetalnick and David Morgan in Washington and Ellen Freilich in New York; Editing by John O'Callaghan)