WRAPUP 3-Obama and Republicans seek an end to U.S. fiscal impasse
* New optimism about reaching a compromise
* No deal yet, White House wary of six-week debt extension
* Large parts of government still closed
* Investors send stocks higher but short-term T-bills suffer
WASHINGTON, Oct 11 (Reuters) - President Barack Obama and congressional Republican leaders inched toward a resolution to their fiscal impasse on Friday, but struggled to nail down the length and terms of a short-term deal to increase the U.S. debt limit and reopen the federal government.
Obama met Senate Republicans at the White House and spoke by phone to House of Representatives Speaker John Boehner as negotiations intensified to find a way to get federal workers back on the job and extend the government's borrowing authority past the Oct. 17 limit.
It was hard to gauge the progress of talks, as all sides refused to divulge specific details of what is being discussed.
But both sides spoke with new optimism about the possibility of avoiding a fiscal crisis, and lawmakers were expected to work through the weekend with a goal of finishing a deal by early next week.
Obama wants Republicans to raise the debt ceiling for longer than the six weeks first proposed by Republicans, and they want a commitment to broader deficit-reduction talks from the White House.
"The two of them agreed that all sides need to keep talking," White House spokesman Jay Carney told reporters after the discussion between Boehner and Obama. "It at least looks like there is a possibility of making some progress here."
House Republicans will meet at the Capitol on Saturday morning to discuss their options after sending the White House a proposal that included the short-term increase in the debt limit that would clear the way for re-opening the government.
The Republican proposal called for cuts in entitlement programs like the Medicare health plan for seniors to replace two years of the automatic spending cuts known as "sequestration" agreed to last year by Congress, senior aides said.
"The good thing is the negotiations are ongoing. That is much more progress than has been the case lately," House Majority Leader Eric Cantor of Virginia said.
But Carney said the short-term increase proposed by Republicans would not provide enough certainty for the economy, putting the country back on the verge of default during the end-of-year holiday season.
"A debt ceiling increase at only six weeks tied to budget negotiations would put us right back where we are today in just six weeks, on the verge of Thanksgiving and the obviously important shopping season leading up to the holidays," Carney said.
At a White House meeting with Senate Republicans on Friday, Obama expressed concerns that the debt-limit extension was too short and also talked about the need for new revenues as part of any long-term deficit reduction plan, Republican Senator Orrin Hatch of Utah said.
'A DIFFICULT EXPERIENCE'
Hatch said he left the meeting feeling the fiscal fight will still be a "difficult experience."
But Senator Bob Corker, a Republican from Tennessee, said "people to a person had to leave there knowing that probably in the very near future we will have these issues behind us."
The new sense of optimism sent U.S. stocks higher on Friday, extending gains from a major rally in the previous session. . But U.S. Treasury bills maturing in late November and throughout December spiked as banks and major money market funds shy away from holding debt with any risk of delayed interest or principal payments.
Time was running short, with the partial government shutdown in its 11th day and less than a week to go before the Treasury Department exhausts its ability to borrow money to pay the government's bills.
Any deal that is struck by leaders could face a revolt from rank-and-file conservatives in both the House and Senate, risking a potential U.S. default that Obama and economists have warned could lead to economic chaos.
Texas Senator Ted Cruz, a Tea Party favorite who has been a leader of conservatives demanding delays or defunding of Obama's healthcare law before they will approve a budget deal, took a hard line at a conference of conservative activists.
In a speech frequently interrupted by hecklers but warmly embraced by the smaller-government Tea Party faithful, he said the country must "stop that train wreck, that disaster, that nightmare that is Obamacare."
The impending fiscal deadline is particularly problematic in the Senate, where procedural delays can slow legislation for up to a week - about the time remaining before borrowing authority runs out, according to Treasury Secretary Jack Lew.
Senate Democratic Leader Harry Reid will hold a vote on Friday or Saturday on a measure giving a one-year debt ceiling increase without conditions. It is expected to be blocked by Senate Republicans. The chamber may then move quickly on a shorter time frame, even if it is not Democrats' first choice.
Reid on Friday publicly criticized Republican calls for a shorter extension of the borrowing authority.
"We do not believe a six-week delay of a catastrophic default is enough to get the economy the confidence it needs," Reid said on the Senate floor.
A flurry of new opinion polls shows Republicans taking the blame for the government shutdown, that began with the start of the new fiscal year on Oct. 1.
A new NBC/Wall Street Journal poll showed Republican Party favorability ratings at an all-time low of 24 percent and Democrats with an eight-point lead on voter congressional preference heading into next year's mid-term elections.