Republican leaders scrambled on Friday to rescue their budget deficit-cutting plan after conservatives mounted a rebellion that heaped uncertainty on efforts to avert a catastrophic debt default.
House of Representatives Speaker John Boehner's failure to round up enough support for his plan on Thursday exposed a rift in the Republican Party that is hampering efforts to reach a compromise to raise the U.S. debt ceiling before a deadline on Tuesday.
Economists warn that a default could push the already fragile economy back into recession. Fears about America's economic health grew on Friday after the government reported that U.S. gross domestic product grew at a tepid 1.3 percent rate in the second quarter, a weaker-than-expected reading.
President Barack Obama was scheduled to deliver a statement on the debt impasse at 10:20 a.m. EDT.
One House member who had resisted Boehner's entreaties said early on Friday that there has been progress on the measure and predicted it would pass later in the day.
"I think we made progress last night," Representative Trey Gowdy, who is backed by the Tea Party movement, told CNN. "What we'll do today, and I predict it will be done today, is for the third time send a plan that raises the debt ceiling in a responsible way."
Obama says that unless Democrats and Republicans strike a deal, the government will start running out of money to pay all its bills on August 2, a prospect that is increasingly unnerving investors.
With only four days left, the Treasury could unveil an emergency plan as early as on Friday explaining how the government would function and pay its obligations if Congress does not agree to raise its borrowing limit beyond $14.3 trillion.
U.S. stocks opened 1 percent lower and were on track to post their worst weekly losses in nearly a year on Friday after data showed meager growth in the economy while the setback over the debt ceiling kept investors nervous.
RATES UP, DOLLAR DOWN
Interest rates on the first Treasury bills maturing after the U.S. government has warned it will run out of money next Tuesday, rose to their highest level since they were issued. The dollar fell to a four-month low against the yen.
In a sign of growing international alarm over the U.S. impasse, China's state-run news agency Xinhua sharply criticized U.S. politicians, saying the world's largest economy has been "kidnapped" by "dangerously irresponsible" politics.
As the largest foreign creditor to the United States, Beijing has repeatedly urged Washington to protect its dollar investments, which are estimated to account for about 70 percent of its $3.2 trillion in foreign exchange reserves.
But lawmakers in Washington were in a standoff as conservative Republicans demand an end to what they say is out-of-control government spending and Democrats seek to protect spending on social programs.
Boehner's plan, which would cut spending by about $900 billion and raise the debt ceiling for a few months, is sure to be rejected by the Democratic-controlled Senate, but could factor into an eventual compromise.
His inability to win quick passage in the Republican-run House could weaken his position at the bargaining table.
Top Senate Democrat Harry Reid wants to raise the debt ceiling by enough to kick the crisis beyond the November 2012 presidential election.
Reid indicated he may advance his own bill, which cuts spending by $2.2 trillion over 10 years, in the Senate rather than use Boehner's proposal as the basis for a compromise.
House Republicans were due to meet at 10 a.m. on Friday to discuss a way forward after last-minute arm-twisting by Boehner failed to overcome opposition within his party and forced him to abandon plans for a vote on Thursday night.