* Deal said close, liberal Democrats upset with outline
* Senate vote not likely before Monday - senior aide
* Could raise limit, cut spending by $2.8 trillion
* $3 trln in cuts may not be enough to avoid downgrade
* Japan, Britain warn of dire consequences if no deal
By Andy Sullivan and Thomas Ferraro
WASHINGTON, July 31 U.S. lawmakers were close
to a last-ditch $3 trillion deal on Sunday to raise the U.S.
borrowing limit and assure jittery financial markets that the
United States will avoid a potentially catastrophic default.
Growing momentum toward a compromise raised hopes that a
weeks-long partisan battle over cutting the U.S. deficit was
nearing an endgame. There are just two days left to lift the
debt ceiling, which caps how much money the United States can
borrow to pay all of its bills.
"We're really, really close to an agreement," said Mitch
McConnell, the Senate Republican leader who has been in
negotiations with Vice President Joe Biden on a plan to reduce
the deficit and permit a vote to raise the debt ceiling.
Financial markets showed signs of relief at a deal in the
making, as U.S. stock futures jumped and the dollar rebounded
Signaling agreement could be imminent, an aide said Senate
Majority Leader Harry Reid would support the emerging deal as
long as his fellow Democrats back it as well. But another
senior congressional aide said a Senate vote was "highly
unlikely" until Monday at the earliest.
House of Representatives Democratic Leader Nancy Pelosi, a
leading liberal whose consent is considered critical to passage
of any compromise because it would likely draw limited
Republican votes, had yet to stake out her position. She set a
meeting with House Democrats on Monday on how to proceed.
Full coverage of U.S. budget and debt [ID:nUSBUDGET]
FACTBOX-Elements of possible US debt deal [ID:nN1E76T0AF]
Graphics package r.reuters.com/nud82s
Live blog here
A deal would ease the immediate crisis but repercussions
will be felt for years to come. Bitter brinkmanship has turned
dysfunction seemingly into the norm in Washington, undercut
America's stature as the world's capitalist superpower and set
the stage for a deeply ideologically 2012 presidential race
when President Barack Obama is seeking re-election.
Full congressional approval could come within hours of a
final accord, but leaders will first have to gauge whether they
have the votes to pass it though the House and the Senate.
Many Democrats were skeptical of the deal that Republicans
said would cut deficits by up to $3 trillion over a decade. It
would force Democrats to stomach deep spending cuts without the
accompanying tax increases they wanted.
PROGRESSIVE DEMOCRAT OPPOSED
In a sign Democratic leaders may lose the support of their
most liberal members, Representative Raul Grijalva said he
could not back the plan. He is the head of the 74-member
Congressional Progressive Caucus.
"Today we, and everyone we have worked to speak for and
fight for, were thrown under the bus," he said.
Some Democratic support will be needed to offset the
inevitable loss of Republican conservatives affiliated to the
Tea Party and get the deal through the House.
David Plouffe, a senior adviser to Obama, said there was
general agreement on a plan that would cut the U.S. deficit
over 10 years in two stages: roughly $1 trillion up front and
the rest based on the recommendation of a joint bipartisan
The proposed $3 trillion in savings may calm financial
markets but it appears insufficient to avoid a downgrade of
America's top-notch AAA rating by Standard & Poor's. The agency
last week reiterated that $4 trillion in deficit-reduction
measures would be "a good downpayment" to show that Washington
was putting the country's finances in order.
"It's really unclear whether a downgrade will be avoided as
a result of this deal," said Kathy Lien, director of currency
research at GFT, New York.
WORLD WARNS OF DISASTER
British and Japanese officials warned of disastrous
consequences for the global economy if the last-ditch talks
among lawmakers in Washington failed to agree on raising the
U.S. borrowing limit and averting a debt default.
Governments across the world fear instability in financial
markets because of the key role of the U.S. dollar in global
banking and trading systems. [ID:nL6E7IV09J]
But with a deal possibly in sight, the Swiss franc, the
favored safety currency during this crisis, pulled back from
record highs against the dollar, and gold slipped off record
Markets were already moving in anticipation of good news.
The S&P 500 futures SPc1 bounced 19.8 points, or 1.5 percent,
to 1307.40. Gold XAU= fell as the metal, which has reached
new heights during the stalemate, lost $16.59 to $1610 an
"At this point, the markets are perceiving that a deal and
a vote will be announced," said Quincy Krosby, market
strategist at Prudential Financial in Newark, New Jersey.
(Additional reporting by Rachelle Younglai, Kim Dixon, Lesley
Wroughton, Donna Smith, Laura MacInnis, Margaret Chadbourn,
Jackie Frank, Andrew Seaman and David Morgan in Washington, and
Walter Brandimarte and Wanfeng Zhou in New York; Writing by
Steve Holland and Matt Spetalnick; Editing by Ross Colvin)