White House edges closer to short-term

debt ceiling deal

The White House and Republicans moved towards a temporary agreement on

a short-term extension of the US debt limit, raising tentative hopes of averting
a potential default by the world’s largest economy.

Amid mounting global pressure for a deal, Barack Obama said he would
consider signing a six-week extension of US borrowings offered by the
Republican leadership in Congress. The accord offered a chance of defusing
the issue a week before the deadline to lift the debt limit.

Financial markets responded favourably to the signs of a thaw in Washington,

with the S&P 500 up 1.7 per cent at midday and set for its best one-day rise
since the start of the year.

However, the White House said it would have to see a detailed proposal, and
the Republican leadership, which has been buffeted by uncompromising Tea
Party members in its caucus, will also have to secure the votes in Congress for
the measure.

“I am hoping [Mr Obama] would look at this as a good-faith measure to move

half way so that a conversation can begin,” John Boehner, the Republican
House speaker, said ahead of a White House meeting with Mr Obama.

Jay Carney, a spokesman for Mr Obama, said: “The president is happy that
cooler heads at least seem to be prevailing in the House ... but he believes it
would be far better for the Congress to raise the debt ceiling for an extended
period of time.”

Sustaining a truce on the debt limit will be difficult, analysts cautioned. It will
also leave large parts of the US government still closed in a parallel but related
stand-off over the budget that led to a partial shutdown 10 days ago.

The Republican leadership wants to take the threat of sovereign default off the
table to allow it to refocus attention on the budget, an issue where it thinks it
has a stronger negotiating position.

The prospect of a deal pushed Treasury bill yields higher on paper set to
mature in late November and early December. Bills serve a crucial role in the
global financial system as collateral for bank funding and derivatives, and the
sector has been hit by the spectre of any delay in bill payments by the US
Treasury. Jack Lew, US Treasury secretary, earlier said there was no guarantee
that international investors would take priority over social security recipients
and other creditors in the event of a default.