President Barack Obama and congressional leaders struggled on Thursday to overcome a bitter budget dispute and head off a government shutdown that would idle hundreds of thousands of workers.

No budget deal was expected to emerge from the fourth White House meeting in three days between Obama, Senate Democratic leader Harry Reid and the top Republican in the House of Representatives, Speaker John Boehner, a Republican aide said.

The trio met in the Oval Office for their second meeting of the day in a tense atmosphere. Neither side seemed willing as yet to make the final compromise necessary for an agreement.

I'm not really optimistic, Reid said on the Senate floor before heading into the evening round of White House talks.

Democrats blamed the impasse on a Republican push for policy provisions that would block public funding of birth control and stymie environmental protection efforts.

But Boehner said the divisions did not stop there.

There are a number of issues that are on the table. And any attempt to try to narrow this down to one or two just would not be accurate, he said.

Their deadline to avoid a shutdown: Midnight on Friday night, or some 28 hours from the start of their 8.20 p.m. EDT talks. Some cable television news broadcasts included a shutdown clock ticking the time down.

With both sides at loggerheads, the U.S. government prepared to furlough about 800,000 workers and close a variety of federal properties like national parks and museums, as well as many government agencies, such as the Internal Revenue Service.

Vital services such as national defense, law enforcement, emergency medical care and air traffic control would continue.

With the U.S. economy in the early stages of a recovery from the worst recession since the 1930s, the administration warned a shutdown could hit small business owners, applicants for home loans and workers who would be left without paychecks as the result of federal layoffs.

The investment firm Goldman Sachs estimated a government shutdown lasting more than a week could cost the economy $8 billion in missed federal spending, dragging down growth.

NARROW DIVIDE

The two sides did not seem far apart in their negotiations in terms of dollars, only several billion dollars out of a budget of about $3.7 trillion.

A Democratic congressional aide said a final deal on total spending cuts for the remainder of this fiscal year would probably end up closer to $33 billion than the Republicans' $40 billion target, although a Republican aide said their side was still pushing for closer to $40 billion.

In the hours leading up to Thursday night's meeting at the White House, Reid huddled with his fellow Democrats to give them the latest state of play in the slow-moving negotiations.

Senator after senator came out of that meeting saying they were not optimistic about prospects for averting a shutdown.

Trying to extend the talks a week, House Republicans approved a short-term spending bill with $12 billion in additional spending cuts. It would fund the Defense Department through September 30, the end of the 2011 fiscal year.

Reid called the short-term extension a non-starter in the Senate because of the spending cuts. Obama vowed to veto it.

I did express to the president my disappointment that he suggested he would veto that, Boehner told reporters after the afternoon White House meeting. We can get to an agreement, but we are not there yet.

Democrats attempted to blame fiscal conservatives aligned with the Tea Party movement for pushing the dispute to the brink of a shutdown.

Boehner is under pressure to stand firm in the talks from Tea Party conservatives who helped fuel last year's big Republican elections gains with promises of deep spending cuts and reduced government.

If this government shuts down, and it looks like it's headed in that direction, it's going to be based on our friends in the House of Representatives, the leadership over there, focusing on ideological matters, Reid said.

(Additional reporting by Kim Dixon, Donna Smith, David Alexander, Andy Sullivan, Thomas Ferraro and David Morgan; Writing by Steve Holland; Editing by Vicki Allen and Deborah Charles)

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