The U.S. Congress and world markets faced more uncertainty on Tuesday as Republican leaders delayed action on a plan to raise the government's $14.3 trillion borrowing limit, narrowing the chances for a deal to avert a debt default.
A week before an Aug. 2 deadline for Congress to act, lawmakers have held out hope for a compromise even as rival Republican and Democratic proposals have paralyzed Washington and prompted growing nervousness over the risks of a downgrade to the top-notch U.S. credit rating.
But serious discussions looked to be delayed for several days after Republicans pushed back a House of Representatives vote on their plan originally expected for Wednesday.
Staffers scrambled to rewrite the bill after an analysis by non-partisan budget experts found it would not deliver the level of spending cuts it promised.
The vote will now be delayed until Thursday at the earliest, meaning Congress will almost certainly be negotiating right up until the Aug. 2 deadline when the Treasury Department has said it will run out of borrowing room.
Analysts say the government may have enough cash on hand to pay its bills until the middle of the month.
House Speaker John Boehner, the top Republican in Congress, also faces an insurrection against his plan from Republican lawmakers aligned with the conservative Tea Party movement.
While most expect a last-minute accord to avert the first default by the U.S., the bitter partisan squabbling and absence of a political consensus on long-term deficit reduction has increased the likelihood of an unprecedented downgrade in the gold-plated U.S. credit rating.
"We're still at at least 50 percent possibility of a downgrade," David Beers, managing director of Sovereign and International Public Finance Ratings at credit ratings agency Standard & Poor's told CNBC's "The Kudlow Report".
The gridlock is unnerving investors worldwide. U.S. stocks and the dollar fell on Tuesday while gold hovered near record highs. But there was no sign of panic as markets held out hope the logjam could still be broken.
Amid hopes that a compromise can still be forged before the Aug. 2 deadline, Boehner has been in touch with his counterpart in the Senate, Democratic Leader Harry Reid, but aides said they would not expect talks to restart in earnest until Boehner's bill passes or fails in the House.
White House senior adviser David Plouffe said earlier on Tuesday the rival plans advanced by Boehner and Reid could yield common ground.
"The Boehner and Reid proposals have quite a lot of similarities," he said. "You can see how there could be the contours of compromise."
Lawmakers from both parties also said a compromise was possible.
But the polarizing debate has laid bare the ideological divide in Washington as each side seeks to blame the other for persistent economic and fiscal woes ahead of the November 2012 election, when President Barack Obama is seeking a second term.
Republicans control the House and Obama's Democrats control the Senate.
(Additional reporting by Laura MacInnis, Alister Bull, Caren Bohan, Rachelle Younglai, Christopher Doering, Deborah Charles, Kim Dixon and Lily Kuo in Washington and Andy Bruce in New York; Writing by Matt Spetalnick and Pascal Fletcher; Editing by John O'Callaghan)