Senate Minority Leader Sen. Mitch McConnell, R-Ky., walks to the Senate floor after agreeing to the framework of a deal to avoid default and reopen the government on Capitol Hill on Wednesday. Carolyn Kaster/AP Photo
U.S. Senate Democratic leader Harry Reid and Senate Republican leader Mitch McConnell announced a bipartisan deal on Wednesday to raise the U.S. debt limit and end the government shutdown.
And Republican Senator Ted Cruz, who had earlier opposed any compromise unless it removed funding for Obamacare, said he does not intend to delay consideration of the measure. The deal was expected to be voted on in the early evening - first in the Senate and then around midnight in the Republican-led House of Representatives,
The House Republicans were to meet at 3 p.m. ET ahead of the vote.
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Reid and McConnell announced the agreement in the Senate soon after the day's session began at noon ET.
Reid said the proposal called for the U.S. Treasury to have authority to continue borrowing through Feb. 7, and the government would reopen through Jan. 15.
Reuters reported that both Democrats and Republicans are confident that the House will have enough votes to pass the bipartisan Senate plan today.
Stock markets soared on the news that the threat of default was easing.
The Dow Jones industrial average rose 174 points, or 1.2 per cent, to 15,342 as of 2:08 p.m. while the Standard & Poor's 500 index approached record highs, rising 19 points, or 1.2 per cent, to 1,718, just seven points below its all-time high of 1,725 set Sept. 18.
The Nasdaq composite rose 42 points, or 1.1 per cent, to 3,835.
"The market believed in and anticipated a resolution," said Doug Cote, chief market strategist at ING Investment Management. "However, we are nonetheless pleased that we got it. It's a relief."
Measure likely to be approved
Aides to House Speaker John Boehner called senior Senate staff earlier in the day to say the House would vote first on the measure, Reuters reported, citing a top Democratic aide. It appears certain to be approved with mostly Democratic votes.
Boehner and the House Republican leadership met in a different part of the Capitol to plan their next move.
The developments came one day before the deadline Treasury Secretary Jack Lew had set for Congress to raise the current $16.7 trillion US debt limit. Without action by lawmakers, he said, Treasury could not be certain it had the ability to pay bills as they come due.
On Wall Street, stocks rose amid strong corporate earnings and traders' hopes for a last-minute deal to avoid a U.S. government default. But rates on short-term U.S. government debt also rose as investors braced for the possibility that the borrowing limit wouldn't be raised in time for the U.S. to continue paying all its bills on time.
There were some dire warnings from the financial world a day after the Fitch credit rating agency said it was reviewing its AAA rating on U.S. government debt for possible downgrade.
John Chambers, chairman of Standard & Poor's sovereign debt committee, told CBS This Morning on Wednesday that a U.S. government default on its debts would be "much worse than Lehman Brothers," the investment firm whose 2008 collapse led to the global financial crisis.
Billionaire investor Warren Buffett told CNBC he didn't think the federal government will fail to pay its bills.
Rhetoric could scare markets: King
Republican Congressman Steve King of Iowa, a favourite of the Tea Party movement, said he was not worried about the prospect of a U.S. default.
"We are going to service our debt," he told CNN. "But I am concerned about all the rhetoric around this … I'm concerned that it will scare the markets."
Aides to Reid and McConnell said the two men had resumed talks, including a Tuesday night conversation, and were hopeful about striking an agreement that could pass both houses.
It was expected to mirror a deal the leaders had neared Monday. That agreement was described as extending the debt limit through Feb. 7, immediately reopening the government fully and keeping agencies running until Jan. 15 — leaving lawmakers clashing over the same disputes in the near future.
It also set a mid-December deadline for bipartisan budget negotiators to report on efforts to reach a compromise on longer-term issues like spending cuts. And it likely would require the Obama administration to certify that it can verify the income of people who qualify for federal subsidies for medical insurance under the 2010 health care law.
Strong GOP opposition to 1st drafts of bill
But that emerging Senate pact was put on hold Tuesday, an extraordinary day that highlighted how unruly rank-and-file House Republicans can be, even when the stakes are high. Facing solid Democratic opposition, Boehner tried in vain to write legislation that would satisfy GOP lawmakers, especially conservatives.
Boehner crafted two versions of the bill, but neither made it to a House vote because both faced certain defeat. Working against him was word during the day from the influential group Heritage Action for America that his legislation was not conservative enough — a worrisome threat for many GOP lawmakers whose biggest electoral fears are of primary challenges from the right.
The last of Boehner's two bills had the same dates as the emerging Senate plan on the debt limit and shutdown.
But it also blocked federal payments for the president, members of Congress and other officials to help pay for their health care coverage. And it prevented the Obama administration from shifting funds among different accounts — as past Treasury secretaries have done — to let the government keep paying bills briefly after the federal debt limit has been reached.
Boehner's inability to produce a bill that could pass his own chamber likely means he will have to let the House vote on a Senate compromise, even if that means it would pass with strong Democratic and weak GOP support. House Republican leaders have tried to avoid that scenario for fear that it would threaten their leadership, and some Republicans worried openly about that.
"Of all the damage to be done politically here, one of the greatest concerns I have is that somehow John Boehner gets compromised," said Republican Senator Lindsey Graham of South Carolina, a former House member and a Boehner supporter.