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Senate 'very close' to deal after House nixes last-ditch debt vote

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After the House abandoned a last-ditch effort to pass its own legislation, Senate leaders say they're closing in on a deal to reopen the government and lift the debt ceiling before a key Thursday deadline.

Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell re-started their negotiations to cut a deal in the upper chamber.

"We are making good progress," said Sen. Dick Durbin, D-Ill., after he emerged from Reid's office Tuesday evening.

(Read more: Relax! Government won't run out of money Thursday)

"It's basically done," a Democratic leadership aide said of the discussions.

As the possibility of a debt default looms on the horizon, Tea Party conservatives refuse to back down unless there are changes to Obamacare. NBC's Kelly O'Donnell reports.

"The nerds have to work," McConnell spokesman Don Stewart said, referring to legislative staffers that are now writing the details.

The reported progress comes after House Republicans cancelled a Tuesday evening vote on a GOP proposal that failed to garner support from conservatives.

Without Democratic support, House Speaker John Boehner would have needed all but a handful of Republicans on board or else face an embarrassing defeat.

Earlier Tuesday, aides said the House would vote on a plan, but hope for passage waned after both Democrats and conservatives balked at backing it.

Heritage Action for America, a prominent conservative group, announced that it would "key vote" legislative action on the House proposal, holding "yes" votes against politically-vulnerable Republicans.

"Unfortunately, the proposed deal will do nothing to stop Obamacare's massive new entitlements from taking root — radically changing the nature of American health care," the group said in a statement.

(Read more: Reid: GOP proposal won't pass Senate)

The proposal would have funded the government until Dec. 15, raise the debt ceiling until Feb. 7. It would also strip lawmakers, their staff and members of the Obama administration of subsidies to buy insurance through the Affordable Care Act's exchanges.

White House Press Secretary Jay Carney comments on progress being made in the Senate on a budget deal that would reopen the government and avoid default, but adds that a resolution may be far away still.

Democrats were not on board with the GOP plan either. House Minority Leader Nancy Pelosi announced after a meeting at the White House that Boehner should be prepared to pass the bill "with 100 percent Republican votes."

GOP leaders pulled an earlier plan from consideration Monday morning after it became clear that it would not get enough votes for passage. But a spokesman for Boehner had pledged that a revised proposal would be put up for a vote by the end of the day.

The stakes are high for authorizing a new borrowing limit to avoid U.S. default on its debts before a Thursday deadline.

On Tuesday, Fitch Ratings put the U.S. government's AAA credit rating on "rating watch negative," citing uncertainty over the debt ceiling. And markets tumbled as lawmakers announced that separate Senate negotiations had been put on hold amid the House back-and-forth.

More from NBC news:

'Bad negotiators': Experts say Congress is getting it wrong in fiscal talks
Reid accuses Boehner of trying to 'torpedo' progress toward ending stalemate
Senate 'very close' to deal after House nixes last-ditch debt vote

President Barack Obama said that he's optimistic that lawmakers will reach an eleventh hour agreement to avert default but again warned that congressional leaders need to find a solution fast.

"My expectation is it does get solved but we don't have a lot of time," he said in an interview with WABC. "What I'm suggesting to the congressional leaders is let's not do any posturing, let's not try to save face, let's not worry about politics. Do what's right."

Republican House Speaker John Boehner speaks on Capitol Hill Tuesday after a GOP conference meeting.

As the House pushed its version of a fix earlier Tuesday, Senate Democrats fumed at the lower chamber for what Reid called a "blatant attack on bipartisanship."

"I know I speak for many of us who were working in good faith when I say we felt blindsided by news from the House," Reid said.

A separate bipartisan group of senators has also quietly restarted efforts to forge a compromise path.

(Read more: Why a US default might not spook the Treasury market)

Led by Maine Republican Susan Collins, the 14 senators from both parties say they're resuming talks after earlier discussions took a backseat to wrangling by McConnell and Reid.

"We've just had a very good discussion picking up where we left off, trying to find a way out of this gridlock and the impasse," Collins told NBC News after the meeting. "It was a great discussion, we're continuing to work, and that's all we have to report."