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Obama, Lawmakers Seek to Salvage US Debt Deal

President Barack Obama met for less than an hour Saturday with congressional leaders in debt crisis talks, and a leading Republican said afterward that top lawmakers were "committed to working on new legislation" to cut federal spending and avert an unprecedented U.S. default.

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There were no immediate signs of a breakthrough, however.

In a statement released afterward, the White House said, "Congress should refrain from playing reckless political games with our economy. Instead, it should be responsible and do its job, avoiding default and cutting the deficit."

The statement renewed Obama's insistence that any agreement tide the government over until after the 2012 elections, to avoid a rerun of the debt dispute in the heat of the campaign.

House Speaker John Boehner (R-OH) issued the following statement regarding ongoing work on a deficit reduction package: “As I said last night, over this weekend Congress will forge a responsible path forward. House and Senate leaders will be working to find a bipartisan solution to significantly reduce Washington spending and preserve the full faith and credit of the United States."

Senate Republican leader Mitch McConnell issued a somewhat more upbeat statement of his own.

"The president wanted to know that there was a plan for preventing national default," he said. "The bipartisan leadership in Congress is committed to working on new legislation that will prevent default while substantially reducing Washington spending."

House of Representatives Democratic leader Nancy Pelosi told reporters Saturday that Obama and congressional leaders are "definitely not" considering a short-term debt limit increase in their weekend negotiations to break an impasse.

A Senate Democratic aide told Reuters that congressional leaders have agreed their staffs would "work together throughout the weekend" to try to craft a deficit reduction bill to clear the way for a a debt limit increase.

With unsmiling faces, Obama, a Democrat, and House of Representatives Speaker John Boehner and other congressional leaders began White House talks on how the debt ceiling can be raised by Aug. 2.

"They are going to have to explain to me how it is that we are going to avoid default,"a visibly angry Obama said Friday after Boehner, the top Republican in Washington, informed Obama he was breaking off talks.

A senior Senate aide, speaking before the White House meeting, said the goal will be to work out a deal this weekend and have legislation ready to introduce Monday.

With the Treasury set to run out of money to pay all of its bills on Aug. 2, Obama feared the window may have closed for a "grand bargain" of spending cuts and tax increases in exchange for Congress raising the $14.3 trillion debt ceiling.

The battle in Washington is over spending cuts and taxes.

Obama says he has agreed to deep spending cuts in social programs that make his own Democrats uneasy but that Republicans must allow some taxes to rise, a prospect they have rejected.

Summoned to the White House were Boehner, Senate Republican leader Mitch McConnell, Senate Democratic leader Harry Reid and Nancy Pelosi, the top Democrat in the House.

Boehner planned to reiterate to Obama that "we must have cuts greater than the debt limit increase," a Boehner aide said. "We will be working throughout the weekend with leaders in the House and Senate to find a serious solution," the aide said.

Financial markets are growing more edgy and U.S. banks and businesses are making contingency plans for the possibility of a debt default that would drive up interest rates, sink the dollar and ripple through economies around the world.

Credit rating agencies want spending restraints for the United States to keep its prized AAA rating that makes U.S. Treasuries the solid foundation for global investors and lowers borrowing costs for state governments, businesses, homeowners and consumers.

"We have now run out of time," Obama said Friday after talks collapsed on a deficit reduction package worth more than $3 trillion over 10 years.

Boehner said Friday he was confident the debt ceiling would be raised next week. But he will have to overcome resistance from Tea Party movement conservatives in his own party and could run into problems for having signaled a willingness to give ground on revenue increases in closed-door talks at the White House.

'HIGHLY DETRIMENTAL'

Both Republicans and Democrats chafed at the compromises a far-reaching deal would require before the presidential and congressional elections in November 2012, with each side accusing the other of not doing enough and demanding too much.

Boehner said talks collapsed because the White House insisted on raising taxes while refusing to get serious about cutting spending and overhauling retirement and healthcare programs. Democrats say tax loopholes and Bush-era tax cuts for the wealthy must end as part of a U.S. fiscal rehabilitation.

A major barrier was how much revenue would be raised through tax reform — with Obama wanting $1.2 trillion over 10 years and Boehner putting $800 billion on the table.

"If not reversed within the next few days through crisis negotiations, this breakdown will be highly detrimental to the already fragile health of both the U.S. and global economies," Mohamed El-Erian, co-chief investment officer at Pimco, the world's top bond fund manager, told Reuters.

Before the meeting, Boehner's aide also said Obama was rejecting suggestions for a short-term debt ceiling increase because taking the issue up again before 2012 presidential and congressional elections could hurt Obama's re-election prospects.

"It would be terribly unfortunate if the President was willing to veto a debt limit increase simply because its timing would not be ideal for his re-election campaign," the aide, Michael Steel, said.

Obama has said raising the debt ceiling again would be even more difficult in the politically-charged atmosphere before an election.

(Additional reporting by Laura MacInnis, Matt Spetalnick, Andy Sullivan and Tom Ferraro; Writing by Steve Holland; Editing by Vicki Allen)

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