* Similarities between rival proposals seen as positive
* U.S. likely to lose top credit rating -economists poll
* Banks prepare for U.S. downgrade, see $100 billion cost
* Most Americans want compromise - Reuters/Ipsos poll
* UPS cites debt ceiling crisis for cautious outlook
(Recasts, adds White House hopes for compromise, details,
By Andy Sullivan and Laura MacInnis
WASHINGTON, July 26 A glimmer of hope emerged
on Tuesday for a compromise to break the deadlock over the U.S.
debt limit as corporate America and the public betrayed growing
nervousness over the risks of a credit downgrade and default.
After weeks of acrimony between Republican and Democratic
leaders, similarities between rival deficit reduction plans
appeared to offer some chance of a deal before an Aug. 2
deadline for Congress to raise the government's $14.3 trillion
While most expect a last-minute accord to avert the first
default by the United States, the bitter partisan squabbling
and absence of a political consensus on long-term deficit
reduction has increased the likelihood of an unprecedented
downgrade in the gold-plated U.S. credit rating.
The gridlock is unnerving investors worldwide. U.S. stocks
and the dollar fell on Tuesday while gold hovered near record
highs. But there was no sign of panic as markets held out hope
the logjam could still be broken. [ID:nN1E76P1SP]
White House senior adviser David Plouffe said the plans
advanced by House of Representatives Speaker John Boehner, the
top Republican in Congress, and Democratic Senate Majority
Leader Harry Reid could yield common ground.
"The Boehner and Reid proposals have quite a lot of
similarities," he said. "You can see how there could be the
contours of compromise."
Lawmakers from both parties also said a compromise was
possible. But the polarizing debate has laid bare the
ideological divide in Washington as each side seeks to blame
the other for persistent economic and fiscal woes ahead of the
November 2012 election, when Obama is seeking a second term.
Republicans control the House and Obama's Democrats control
Full coverage of U.S. budget and debt [ID:nUSBUDGET]
Insider TV http:link.reuters.com/zat72s
COLUMN-Death of Treasury benchmark [ID:nN1E76O04X]
BREAKINGVIEWS-US can save its AAA rating [ID:nN1E76P1SC]
"TIME TO ACT IS NOW"
Even if a default is avoided, a credit downgrade would
undermine confidence in U.S. solvency, stunting economic
recovery prospects and sending negative ripples through the
international financial system where U.S. bonds are
bellwethers. The world's largest economy risks being viewed as
a dysfunctional giant with feet of clay.
A Reuters poll showed that 30 of 53 economists surveyed
over the past two days said the United States will lose its
top-notch credit rating from one of the three big ratings
agencies -- Standard & Poor's, Moody's and Fitch. Most said the
wrangling already has damaged the economy. [ID:nN1E76P12Q]
Executives from Standard & Poor's and Moody's Investors
Service are scheduled to testify to Congress on Wednesday on
attempts to reform the credit rating industry and the role it
is playing in the U.S. debt ceiling debate.
With the deadline for raising the government's borrowing
authority a week away, Congress was in a state of suspended
animation before an anticipated Wednesday vote in the House on
Boehner's deficit reduction plan.
The outcome of that vote is in question as Boehner battles
an insurrection on the right. Conservative groups warned
lawmakers that a "yea" vote would be held against them.
No more than 22 Republicans can vote against the bill if it
is to pass without Democratic help. At least 10 Republican
lawmakers aligned to the fiscally conservative Tea Party
movement have told Reuters they plan to vote against the bill.
Boehner had another setback when the non-partisan
Congressional Budget Office said his plan would save $850
billion over 10 years, not the $1.2 trillion he claimed.
Boehner and Reid remained in touch, aides said, but no
serious discussions were likely until after the House vote.
Even if Boehner's plan passes the House, it is "dead on
arrival" in the Senate, said Reid, who is delaying action on
his own bill.
But several lawmakers noted the similarities between the
two plans. "The commonality is pretty apparent," said Jon Kyl,
the No. 2 Republican in the Senate.
The stalemate in Washington is already having an effect on
investors, with some starting to take cash out of the market
and shifting away from some long-term investments.
"The time for Congress to act is now," the U.S. Chamber of
Commerce, the world's largest business federation, said in a
letter to House members.
Further underscoring the risks, United Parcel Service Inc
(UPS.N), the world's largest package delivery company, cited
the stalled debt ceiling talks as a reason for business
uncertainty in its quarterly earnings report. [ID:nN1E76P021]
There were clear signs too that ordinary Americans were
beginning to wake up to the dangers of the debt deadlock.
Obama, in an address to the nation late on Monday, warned
that a default would mean the government would not be able to
pay bills including monthly Social Security checks, veterans'
benefits and contracts with thousands of businesses.
A Reuters/Ipsos poll found Americans are overwhelmingly
concerned about the debt crisis and a majority back the type of
compromise pushed by Obama to end the impasse. [ID:nN1E76P1KS]
It showed 56 percent said lawmakers and Obama should agree
to a combination of tax hikes and cuts to government programs
-- the strategy the president has promoted and Republicans have
After an appeal by Obama for Americans to make their voices
heard to avert a "reckless and irresponsible default," people
crashed websites with emails and flooded the telephone lines of
lawmakers in Washington with thousands of calls.
Big banks are preparing for the real possibility that the
United States will lose its top credit rating, which they said
would cost the country $100 billion in higher interest payments
and hurt consumers and the economy.
"That's an environment where hiring is going to be much
less likely than it otherwise would be," Mike Hanson, senior
U.S. economist at Bank of America Merrill Lynch, said on a
conference call organized by a Wall Street trade group, the
Securities Industry and Financial Markets Association.
(Additional reporting by Laura MacInnis, Alister Bull, Caren
Bohan, Rachelle Younglai, Christopher Doering, Deborah Charles,
Kim Dixon and Lily Kuo in Washington and Andy Bruce in New
York; Writing by Matt Spetalnick and Pascal Fletcher; Editing
by John O'Callaghan)