U.S. President Barack Obama and congressional leaders have reached a last-minute deal to slash spending before a deadline for a government shutdown that would have affected hundreds of thousands of federal workers.
Republicans and Democrats in Congress broke the deadlock less than two hours before a midnight deadline would have forced the government to shut down.
Their tentative deal will slash $38 billion from federal spending until October this year. Congress approved a seven-day spending resolution to keep the government open while the budget is formally enacted.
The agreement ended a bitter standoff in which each side blamed the other for the impasse.
Democrats accused Republicans of threatening negotiations by pushing social issues such as cutting funding for abortion. Republicans, under pressure from members of the conservative Tea Party, said the main stumbling block was over spending cuts needed to start paring back the government's trillion-dollar budget deficits.
Announcing the deal to reporters, the U.S. House of Representatives speaker, Republican John Boehner, said the sides had reached an agreement that would "cut spending and keep our government open."
"As you all know this has been a lot of discussion and a long fight. But we fought to keep government spending down because it really will in fact help create a better environment for job creators in our country," Boehner said.
The deal ends President Obama's biggest showdown with Republicans since they won control over the House of Representatives in elections last November promising to cut the size of the government.
The Democrats forestalled a Republican effort to limit environmental regulations and block funding for birth control through the Planned Parenthood family planning organization and other groups that provide abortions.
Speaking at a late-night news conference, Obama said the budget "invests in our future while making the largest annual spending cut in our history."
"Like any worthwhile compromise, both sides had to make tough decisions and give ground on issues that were important to them. And I certainly did that," Obama said.
Despite their size, the cuts amount to around only 1 percent of total federal spending. But Obama said some of them would be "painful,” cutting back government programs and infrastructure projects.
"I would not have made these cuts in better circumstances. But beginning to live within our means is the only way to protect those investments that will help America compete for new jobs, investments in our kids' education, and student loans, and clean energy, and life saving medical research. We protected the investments we need to win the future," Obama said.
Hours earlier, federal workers were preparing to stop work. A shutdown, the first in 15 years, would have forced most government employees to take furloughs, suspended key government services, and shut down the Washington Monument and other national sites. The economic consequences could have been disastrous, with at least one estimate predicting it would have cost the economy $8 billion and hurt growth.
Democrats and Republicans will have to meet again next week to finalize their deal.
Both sides, wary of the political consequences of a government shutdown, appeared relieved over the deal, which reflected the growing power of conservative Republicans. But the standoff was a foretaste of more battles to come as the parties prepare for a presidential election in 2012.
with agency reports