UPDATE 1-U.S. Treasury says hitting debt ceiling on Monday

Mon Dec 31, 2012 5:48pm EST

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WASHINGTON Dec 31 (Reuters) - The U.S. Treasury said it would hit a legal limit on borrowing on Monday but was launching new measures to keep the nation from defaulting on its debt.

A Treasury official said the federal government was hitting its $16.4 trillion ceiling on borrowing.

The government is facing a crunch on the debt ceiling because the issue has become tangled up in talks to avoid some $600 billion in tax hikes and spending cuts due to begin in early January. Failing to raise the debt ceiling could cause the government to default on its debt.

To cut government spending and keep the government from going over the debt ceiling, the government will suspend some investments in pension and health benefit funds for federal workers beginning on Monday, Treasury Secretary Timothy Geithner said in a letter to congressional leaders.

The suspension of the investments is part of a series of measures announced last week to keep the country from defaulting on its debt.

Normally, these measures would buy the Treasury about two months before hitting the debt ceiling, the Treasury has said. But a series of planned tax hikes and spending cuts due to take effect in early January could give Treasury further time if they take effect as scheduled, Geithner said last week.

Many analysts believe the measures available to the Treasury can stave that date off into late February.

The U.S. Congress typically authorizes government borrowing in a two-stage process, first drafting plans to spend more than it raises in tax revenues. Every few years, it raises a limit on government borrowing to accommodate annual deficits, a process that this year has become ensnared by the contentious budget talks in Washington.

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