A Republican plan to cut the US deficit is facing delay and stiff opposition, piling anxiety onto investors hoping for a late compromise to avoid a crippling debt default.
Republican and Democratic leaders are scrambling to find common ground with less than a week before the government hits its borrowing limit approved by Congress, triggering a possible default that would cause turmoil on markets.
Even if that fate is avoided, a plan that flinches from hefty deficit cuts could result in a downgrade of America's top-notch credit rating that would raise its borrowing costs and deal a severe blow to its economic recovery.
After weeks of acrimonious debate, the outline of a possible deal has emerged. However, Republicans and Democrats are digging their heels in on some key demands and blaming each other for putting politics ahead of the national interest.
The chances of a quick resolution narrowed after a vote on a deficit plan by the top Republican in Congress was pushed back from today to tomorrow.
Republican Speaker John Boehner is trying to rework his bill after an analysis found it would cut spending by $350bn less than the $1.2 trillion over ten years he had claimed.
US President Barack Obama has threatened to veto the Boehner plan and top Senate Democrat Harry Reid described it as 'dead on arrival'.
The plan has also failed to win the backing of conservative Tea Party Republicans, who have steadfastly refused to back tax rises and want much heavier cuts to social programmes that are traditionally protected by Mr Obama's Democrats.
The White House said yesterday it was working with Congress to craft an unspecified 'Plan B', providing a glimmer of hope that an 11th-hour deal could be reached as politicians feel the pressure from increasingly anxious financial markets.
The gridlock dragged down US stocks for a second day yesterday and the dollar continued to slide in early Asian trade today, falling to a fresh four-month low against the Japanese yen.
A Reuters/Ipsos poll showed the US public is overwhelmingly concerned about the crisis and a majority - 56% - support a mixture of tax increases and spending cuts that Mr Obama has advocated and Republicans have dismissed.