President Barack Obama and congressional leaders pressed ahead with private talks on deficit reduction, seeking a way to lift the debt ceiling and avoid a US default next month.

Congress must raise the $14.3 trillion limit on US borrowing by 2 August or the US government will run out of money to pay its bills, causing turmoil in global financial markets and potentially forcing the US into another recession.

Republicans want a deficit-cutting deal in order to raise the debt limit, but they disagree with Democrats on how to do it. The White House wants some tax increases on wealthier Americans to be part of a package, but Republicans reject that.

But prospects for a deal anytime soon appear unlikely, as the House and Senate were expected to spend much of next week debating budget-related measures that have little chance of becoming law.

On Thursday evening Mr Obama gave lawmakers a deadline of today to come up with a plan to go forward and suggested he could call for further talks over the weekend if needed.

No new talks were scheduled, however, according to Republican and Democratic aides.

A White House official said Barack Obama, Vice President Joe Biden and other administration officials were 'in frequent communication' with congressional leaders and staff, discussing 'various options.'

Republicans say the tax hikes Mr Obama is seeking would hurt small businesses.

Yesterday, Mr Obama renewed his call for a ‘grand bargain,’ which would cut entitlement programmes dear to his fellow Democrats, but Republicans have flatly rejected his call for higher taxes on the rich.

The US president, sure to be judged in the 2012 elections based on his handling of the jobs-poor US economy, also signalled he would not reject a last-minute compromise key lawmakers were drafting behind closed doors.

‘Let's at least avert Armageddon,’ he said after five straight days of crisis talks at the White House failed to reach a deal.

Ratings agencies Moody's and Standard & Poor's have warned they may downgrade Washington's sterling Triple-A debt rating, and leading US creditor China, Wall Street titan JPMorgan Chase and the Federal Reserve have also sounded the alarm.

Mr Obama's top Republican foes in Congress have called for votes next week on their plan for severe spending cuts on the way to amending the US Constitution to require cash-strapped Washington to balance its budget.

‘Our jobs crisis and national debt require real action. So now the debate will move from a room in the White House to the House and Senate floors,’ said Republican Senate Minority Leader Mitch McConnell.

‘It's time for the Democrats to get serious as well. We asked the president to lead. We asked him to put forward a plan - not a speech, a real plan - and he hasn't. We will,’ said Republican House Speaker John Boehner.