Failed bill spotlights dysfunction in Congress

The Capitol dome and Senate (R) in Washington, August 2, 2011.

WASHINGTON (Reuters) - Republican leaders scrambled on Thursday to find the votes to keep the government funded after the embarrassing defeat of a spending bill threw into question Congress' ability to pass basic laws.

The bill's unexpected failure suggested that, even in the face of rock-bottom approval ratings, Democratic and Republican lawmakers may not be able to bridge their differences to pass a measure that would help disaster victims and avoid a government shutdown.

The House of Representatives and Senate must pass legislation to keep the government fully functioning beyond October 1 while lawmakers continue to debate a full budget. They also need to replenish a disaster-relief fund that could run dry on Monday during one of the most extreme years for weather in U.S. history.

Democrats and Tea Party-aligned Republicans united to defeat the spending bill on Wednesday, albeit for opposite reasons.

House Speaker John Boehner, the top Republican in Congress, said the dispute would not lead to a government shutdown.

Republicans prepared to bring the bill up for another vote later in the day. An aide said the legislation may be modified to eliminate a $100 million loan for Solyndra, a failed solar company whose government loan guarantees are drawing scrutiny.

In a closed-door meeting, Boehner warned conservatives who had pushed for deeper spending cuts that their stubbornness would only strengthen the hand of Democrats who want to increase disaster aid and block a cut to an electric-vehicle loan program.

Some conservatives said they would switch their votes, according to participants, but others remained unmoved.

"We promised we would make serious cuts. We have not made serious cuts yet," said Republican Representative Louie Gohmert.

Boehner and other top Republicans have vowed to lower the temperature on Capitol Hill after fierce budget battles with Democrats pushed the U.S. government to the brink of a shutdown in April and the edge of default in August.

The months of turmoil on Capitol Hill have spooked consumers, rattled investors and led to a cut in the country's top-notch AAA credit rating.

LAWMAKERS TO DELAY DEPARTURE?

World stock markets tumbled as a grim outlook from the Federal Reserve renewed fears of a global recession. The turmoil in Washington could add to the uncertainty among nervous investors, traders said.

"There is such a lack of belief that we can expect any kind of help to come out of our political leaders," said Mitch Stapley, chief fixed-income trader at Fifth Third Asset Management in Grand Rapids, Michigan.

The bill in question would provide billions of dollars in relief to communities that have been ravaged by tornadoes, floods and other disasters in one of the most extreme years for weather in U.S. history.

It also would keep the government running beyond September 30, the end of the fiscal year.

Analysts said a government shutdown is unlikely at this point as Congress has more than a week to resolve its differences. Every spending debate this year has gone down to the wire.

Lawmakers had hoped to leave town on Thursday night for a weeklong break but leaders warned that weekend votes may be necessary.

Deeper spending cuts would prompt a standoff with the Democratic-controlled Senate and increase the probability of a government shutdown. Any moves to placate Democrats, however, could undermine Boehner's position as the Republican leader.

Republican leaders have struggled at times to rein in a conservative Tea Party faction that has shown no appetite for compromise, even as a special bipartisan committee searches for hundreds of billions in budget savings that will likely require painful sacrifices for Republicans and Democrats alike.

About 60 Tea Party Republicans have defied Boehner on other high-profile budget bills this year, but he has previously been able to rely on Democratic votes to win a majority.

(Additional reporting by Thomas Ferraro and Richard Cowan in Washington and Karen Brettell in New York; Editing by Doina Chiacu)