UPDATE 3-Deadlocked Congress brings U.S. gov't to edge of shutdown
* Time to avoid shutdown dwindles as Republicans, Democrats dig in
* Senate strips Obamacare delay from funding bill
* House to respond with new Obamacare conditions - GOP aide
* One million federal workers face furlough after midnight
By David Lawder and Susan Heavey
WASHINGTON, Sept 30 (Reuters) - The U.S. Congress, still in partisan deadlock on Monday over Republican efforts to halt President Barack Obama's healthcare reforms, was on the verge of shutting down most of the U.S. government starting on Tuesday morning.
With the law funding thousands of routine government activities set to expire at midnight, U.S. Senate Democrats killed a proposal by the Republican-led House of Representatives to delay Obamacare for a year in return for temporary funding of the federal government beyond Monday.
After a partisan vote of 54 to 46 in the Senate, it now goes back to the House, where a senior Republican aide said the party would continue to seek a one-year delay in the Obamacare requirement for all individuals to obtain health insurance as part of a new spending bill. The measure also would require the president, senior administration officials and members of Congress and their aides to participate in Obamacare.
The Senate has so far rejected all House efforts to modify the health law in connection with the spending bill.
Obama, saying he was not "resigned" to a shutdown, said ahead of the Senate vote that he planned to talk to congressional leaders later on Monday as well as on Tuesday and Wednesday but held out no new offer of compromise.
Failure to reach an agreement to extend funding would force many federal agencies and programs to close or partially close for the first time in 17 years, putting up to 1 million federal workers on unpaid leave. The military would still function normally, but many civilian employees would be sent home.
Some functions deemed essential, such as U.S. Department of Agriculture meat inspections, would continue. Other agencies, including those in the vast Washington's regulatory establishment, will be left with skeleton crews for emergencies.
A shutdown would continue until Congress resolves its differences. That could be a matter of days, or weeks.
The standoff did not bode well for the next political battle, a far-more consequential bill to raise the federal government's borrowing authority. Failure to raise the $16.7 trillion debt ceiling by mid-October would force the United States to default on some payment obligations - an event that could cripple its economy and send shockwaves around the globe.
Global stock markets fell and the dollar dropped against major currencies on Monday as investors worried about the prospects of a partial U.S. government shutdown. The Dow Jones industrial average was down 0.8 percent, and the dollar traded 0.4 percent lower against a basket of six major currencies.
"The government is such an important part of the entire economy, between the people it employs and the impact it has on consumer confidence," said Nicholas Colas, chief market strategist at the ConvergEx Group in New York. "The size of the selloff is logical given the stakes."
The two parties continued to blame each other on Monday for failing to avoid the impending shutdown. Republicans accused Obama of ignoring their pleas for negotiations.
"This president hasn't been involved at all with the leadership or with the Congress," Representative Matt Salmon, an Arizona Republican, told MSNBC's "Morning Joe" program, adding that Obama has not contacted Boehner in more than a week.
But he said Republicans would not give up their quest to thwart the implementation of Obamacare, a program aimed at providing healthcare coverage to millions of uninsured Americans. Republicans say the launch on Tuesday of new online government health insurance exchanges will cause premiums to rise and deter companies from hiring new workers.
Salmon, who was in Congress during the last shutdown from late 1995 to early 1996, said Republicans do not want to see a shutdown but would keep fighting against Obamacare with another proposal. "We should go back at them," he said.
DEMOCRATIC SENATOR CONDEMNS 'EXTORTION'
Democratic Senator Charles Schumer of New York said he was still holding out some hope that the House Republicans "would come to their senses" and vote to keep the government open.
"It is extortion," Schumer, speaking on "Morning Joe," said of Republicans' strategy. "It's holding the good of the country - the economy, middle-class people at risk."
Early on Sunday, House Republicans passed measures to attach the Obamacare delay and the repeal of the medical device tax to the stop-gap spending bill that would keep government agencies open until Nov. 15. In a sign that a shutdown may look increasingly inevitable, the House also unanimously passed a separate measure to keep paying U.S. soldiers in the event of a shutdown.
More people will blame congressional Republicans than Obama if the U.S. government shuts down this week and most want a budget deal to avoid disruption to federal funding and services, a poll released on Monday showed.
Forty-six percent said that if government agencies and programs start closing on Tuesday, they would fault Republicans in Congress while 36 percent said they would blame Obama, the CNN survey found. Thirteen percent said both would be at fault.
About 60 percent of the 803 U.S. adults polled said they want lawmakers to pass a budget agreement to avoid the shutdown, according to the telephone survey conducted over the weekend with a margin of error of plus or minus 3.5 percentage points.
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