WASHINGTON - Spurred on by President Barack Obama, US lawmakers set the stage late Friday for a frantic beat-the-clock weekend effort to avert a catastrophic debt default sure to rattle the world economy.
In a grim warning of what may come if there is no breakthrough by Tuesday's deadline, US markets tumbled for a fifth straight day -- a month of gains wiped out in a week of losses due to poor US growth and the political stalemate.
"We are almost out of time. We need to reach a compromise by Tuesday so that our country will have the ability to pay its bills on time, as we always have," Obama said in appeal for Republicans and Democrats to carve out a deal.
The US economy hit its $14.3 trillion debt ceiling on May 16 and has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally -- but can only do so through Tuesday.
Business and finance leaders have warned that default would send crippling aftershocks through the fragile US economy, still wrestling with stubbornly high unemployment in the wake of the 2008 global meltdown.
The Republican-held House of Representatives late Friday passed Republican Speaker John Boehner's bill to avert a default, setting the stage for the Democratic-led Senate to set aside the bill or change it to suit its approach.
"Americans are worried about finding work. They're worried about our economy, and they're worried about the mountain of debt that's facing them," Boehner said. "Today, we have a chance to end this debt limit crisis."
Twenty-two House Republicans joined all 188 Democrats voting in opposing Boehner's legislation, while 218 Republicans backed in -- eking out the 216 votes needed for passage.
"It is time for Republicans to stop the political games and embrace compromise," Democratic Senate Majority Leader Harry Reid said, urging Republican Senate Minority Leader Mitch McConnell to now help build a way forward.
McConnell accused Democrats of "ginning up opposition to everything" Republicans offer -- but declared "I eagerly await the majority leader's plan for preventing this crisis."
At the White House, spokesman Jay Carney warned "uncertainty" about a breakthrough had done "damage" to the fragile US economy, already suffering from slow growth and stubbornly high unemployment of 9.2 percent.
A key sticking point was the duration of any debt limit increase: Reid rejected Boehner's plan in large part because it would set the stage for another high-stakes showdown in a few months.
"We cannot be in this battle all the time," said Reid, whose own plan would spare Obama another politically fraught debt battle as he seeks a second term in the November 2012 elections.
Boehner's bill would pair raising the debt ceiling by $900 billion with spending cuts of some $917 billion over ten years, while requiring later debt limit increases be tied to congressional passage of a balanced budget amendment to the US Constitution for ratification by the 50 states.
Reid, whose Democrats oppose tying the debt limit to such amendment, has offered a blueprint that would raise the debt ceiling by $2.7 trillion while cutting spending by some $2.2 trillion over 10 years.
He also called for a quick vote to set aside Boehner's plan, and took steps to set up procedural votes on the road to final Senate passage of a compromise on Monday or Tuesday, depending on the approach he chooses.
That would leave it up to the bitterly divided House to take the final step, a vote that would require Democrats and Republicans to pass the legislation in a down-to-the-wire endgame with unprecedented financial stakes.
Obama insisted both sides were "in rough agreement" on how much spending can be cut "responsibly," and on the steps to take in the coming months on tax reforms as well as some kind of enforcement mechanism.
But when a well-wisher at the White House told Obama that he owed him a poker game, the president responded: "I got some high stakes poker going on right now."
Chinese media attacked the United States over the debt wrangling, warning it could plunge the world into another recession.
China is the top foreign holder of US debt with holdings at $1.16 trillion in May, according to US data, and has raised concerns about its investments.
But in more bad news for the US economy, struggling to recover from the 2008 financial crisis, government data released Friday showed economic growth had nearly stalled in the first half.
The US economy grew at a dead-pace 0.4 percent in the first quarter and only 1.3 percent in the second quarter of 2011, the Commerce Department said.
Markets around the world remained on edge as Asian stocks fell amid fears that US lawmakers will not break the deadlock.