President Barack Obama and congressional leaders, struggling to break an impasse over taxes and spending cuts, will regroup on Tuesday to seek common ground for a deal to avoid a looming debt default.

Obama and top lawmakers from both political parties will hold their third meeting in as many days at the White House at 3:45 p.m. to hammer out elements of legislation to reduce the U.S. deficit and raise the debt ceiling by August 2.

The two sides remain far apart on the role of revenues in a deficit-fighting plan.

The White House wants to end Bush-era tax breaks for the wealthiest Americans and close other corporate tax loopholes, boosting federal coffers even as massive government spending cuts are made.

Republicans say any tax increases would hurt a vulnerable economy.

The issue of tax increases is one of the biggest stumbling blocks for both sides as time begins to run short for a deal.

The Treasury Department has warned it will run out of money to cover the country's bills if Congress does not increase its borrowing authority by August 2.

Republicans have balked at raising the $14.3 trillion U.S. debt limit without steep spending cuts.

The urgency is growing, a Democratic official familiar with the talks told reporters on Monday. There is absolutely time to still work this out, but time is also running out.

Failure to act on the debt limit could push the United States back into recession. U.S. stocks suffered their worst day in nearly a month on Monday, partially because of concern about the stalemate in Washington.

The Dow Jones industrial average was down 151.44 points, or 1.20 percent, at 12,505.76 at the close, while the Standard & Poor's 500 Index was down 24.31 points, or 1.81 percent, at 1,319.49.

Obama is pressing for a big, $4 trillion package that would encompass spending cuts, tax increases for top earners, and reform of expensive entitlement programs for the elderly and the poor.

Republicans are pressing for a smaller, $2 trillion deal that is limited to spending reductions.

Republican House of Representatives Speaker John Boehner will meet with lawmakers from his party to discuss the issue on Tuesday morning before the White House negotiations.

We're going to continue to make the case that tax increases are bad for jobs, a Republican congressional aide said.

Democratic officials, however, said Boehner faced the political reality of needing Democratic support to pass any measure since some members of his party would not support an increase in the debt ceiling at all.

Those officials said Democrats would not vote for a package that was based on spending cuts alone.

Anything that passes requires significant Democratic votes, an official said. The (plan that Republicans) laid out that didn't have revenues, that was all cuts, didn't meet the test.

(Editing by Paul Simao)