* Bill expected to die in Senate, could trigger compromise
* House passage strengthens Boehner's hand
* Final vote seen on Monday or Tuesday
* Edgy markets cling to hope of compromise deal
(Add Boehner quote, reaction)
By Andy Sullivan and Richard Cowan
WASHINGTON, July 29 The U.S. House of
Representatives approved a Republican deficit plan on Friday
that has no chance of becoming law but could pave the way for a
last-ditch bid for bipartisan compromise to avert a crippling
With time running short ahead of a Tuesday deadline to
raise the debt ceiling, the Republican-controlled House pushed
the deficit-cutting plan through by a vote of 218-to-210 after
the party's leaders reworked the bill to appease anti-tax
conservatives in their ranks.
The legislation, denounced earlier by President Barack
Obama who had admonished lawmakers to stop wasting time and
find a way "out of this mess," was doomed to defeat in the
Democratic-led Senate where all of Obama's Democrats have vowed
to vote against it later on Friday.
But the House vote broke weeks of political inertia and
opened the door to talks on a compromise that could pass
Congress before Tuesday. That is the deadline to lift the $14.3
trillion U.S. debt limit or else render the world's largest
economy unable to pay all of its bills.
Delays and procedural hurdles will now make it all but
impossible for Congress to strike a deal and send it to Obama's
desk until the 11th hour, injecting a dangerous level of
uncertainty into already rattled global financial markets. A
late deal also raises the prospect of the United States losing
its top-notch AAA credit rating.
Both sides have been at impasse for weeks with lawmakers
locked in a blame game that has brought the country to the
brink of an unprecedented default, which could plunge America
back into recession and trigger economic turmoil globally.
Full coverage of U.S. budget and debt [ID:nUSBUDGET]
SCENARIOS-Obama options if no debt deal [ID:nN1E76O0QG]
ANALYSIS-Debt crisis big test for Boehner [ID:nN1E76Q1PW]
BREAKINGVIEWS-Investors too complacent [ID:nN1E76Q0EQ]
Graphics package r.reuters.com/nud82s
World leaders have been stunned by the dysfunction in
Washington. World Bank President Robert Zoellick on Friday said
the United States was playing with fire.
America's largest foreign creditor, China, has repeatedly
urged Washington to protect its dollar investments and its
state-run news agency on Friday said the United States had been
"kidnapped" by "dangerously irresponsible" politics.
BOEHNER PLACATES ENOUGH RECALCITRANTS
House Speaker John Boehner's failure on Thursday to quell a
rebellion among Tea Party-affiliated conservatives in his party
and bring his proposal to a vote exposed a rift among
Republicans that complicated efforts to reach a compromise.
But Boehner brought enough of his recalcitrant Republicans
onboard on Friday with a retooled plan that included a
requirement for Congress to pass a balanced budget amendment to
the Constitution and send it to the states for ratification, a
long-time core demand of fiscal conservatives.
"I stuck my neck out a mile to try to get an agreement with
the President of the United States," Boehner said on the House
floor shortly before the vote, his voice rising.
"Where are other ideas?" he asked as he accused Obama of
failing to come up with a plan of his own. Republicans
applauded loudly and Democrats hissed.
Boehner's two-step plan would cut spending initially by
about by about $900 billion and lift the debt ceiling only
enough to last a few months. That would mean a re-run of the
acrimonious debate which Obama is determined to avoid at a time
when he will be deeper into 2012 re-election campaign.
Top Senate Democrat Harry Reid has said a short-term
solution is unacceptable and is pushing his own bill that would
cut $2.2 trillion in spending over 10 years.
Reid's plan is expected to be amended to make it more
palatable to moderate Republicans in the House, and, with
Democratic votes, offset the inevitable loss of support from
anti-tax Tea Party-aligned Republicans.
Jittery financial markets will be watching what is expected
to be a weekend of hard bargaining and further brinkmanship.
"This is just a signal that Republicans have rallied around
a common set of ideas. But they still have to negotiate with
Democrats," said Michael Woolfolk, senior currency strategist
with BNY Mellon in New York. "We're going to have to wait until
Obama, who has been sidelined in recent days by the debt
battle on Capitol Hill, said the parties were not that far
apart on spending cuts. "There are plenty of ways out of this
mess but we are almost out of time," he said earlier.
Shortly before the House vote, ratings agency Moody's
signaled it probably will not downgrade the United States'
triple-A credit rating immediately, even if there is no deal to
raise the debt ceiling, but a cut could come in the medium
Moody's said the United States would still have enough
money to pay its debts to bondholders after Tuesday.
Rival ratings agency Standard & Poor's has warned it could
cut the rating soon if there is no deal to address the
underlying budget problems, a move which could push up U.S.
borrowing costs and further hobble the weak economic recovery.
Fears about the health of America's economy multiplied
after a government report showed weaker-than-expected growth in
the first half of the year, raising the risk of recession.
The government reported U.S. gross domestic product grew at
an anemic pace of 1.3 percent in the second quarter. Growth
during the first quarter was revised sharply down to a meager
0.4 percent pace.
(Additional reporting by Rachelle Younglai, Donna Smith, Lily
Kuo, Margaret Chadbourn, Laura MacInnis, Tabassum Zakaria in
Washington and Karen Brettell, Steven C. Johnson and Jennifer
Ablan in New York; Writing by Stuart Grudgings and Matt