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Democratic and Republican leaders escalated their fight despite instructions from President Barack Obama earlier to produce a budget plan by Monday that would clear the way for Congress to raise the $14.3 trillion (8.76 trillion pound) debt ceiling by August 2.
Saying he was "deeply disappointed" by the lack of progress towards a deal to raise the credit limit built around deficit cuts, Senate Democratic leader Harry Reid said Republican "intransigence" was "pushing us to the brink of a default on the full faith and credit of the United States."
The latest flare-up centred around a Republican plan being proposed behind closed doors calling for two instalments of debt limit increases and deficit reduction.
Democrats said they only wanted to extend the debt limit once through the 2012 election year, a Democratic aide said.
Democrats insist upon tax increases as part of deficit reduction and fear that under the Republican plan they would be put off until next year in the midst of presidential and congressional re-election campaigns, or may be never happen.
Michael Steel, a spokesman for House Speaker John Boehner, the top Republican in Congress, said that "a two-step process is inevitable." He also reiterated that a default "is not an option."
Lawmakers nevertheless scrambled despite the new wrinkle to show by around 4 p.m. EDT Sunday -- just before Asian markets kick off their trading week -- that substantial progress was being made to avoid a US default on its debt.
A Republican leadership aide said lawmakers are working on a plan for $3 trillion to $4 trillion in savings over 10 years, but another high-ranking Republican official said no numbers had been set.
Talks between Obama and Boehner collapsed in acrimony on Friday. In hopes of patching things up, Obama called Boehner, Reid, Senate Republican Leader Mitch McConnell and House Democratic Leader Nancy Pelosi to the White House early on Saturday to discuss a path forward.
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The four congressional leaders met in the Capitol later in the day as work got hung up on the question of whether to go for a long-term or shorter-term debt limit hike.
The lawmakers' overall goal: Seal a deficit-reduction package of spending cuts and perhaps tax increases that will allow a vote by the August deadline to raise the US debt ceiling beyond $14.3 trillion and avoid potential economic calamity.
Financial markets are growing more edgy and US 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 Triple-A rating, which makes US Treasuries the solid foundation for global investors and lowers borrowing costs for state governments, businesses, homeowners and consumers.
Investors followed developments throughout the day.
"We continue this weekend to monitor very closely the negotiations in Washington, with frequent updates and assessments. We are also evaluating reactions outside the United States," Mohamed El-Erian, co-chief investment officer at Pacific Investment Management Co.
A breakdown in Washington, he feared, "will be highly detrimental to the already fragile health of both the US and global economies."
Lawmakers also were mindful of what could happen in financial markets if a deal is not quickly reached.
"I am concerned that there might be an adverse reaction in the markets," Republican Representative Charles Dent said in a telephone interview with Reuters.
Dent said Boehner told members a default was not an option and lawmakers have to come to agreement.
"We need to have something posted online by Monday," a Republican congressional aide said.
In the White House meeting, Obama warned lawmakers not to pursue a short-term extension of the debt limit.
"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," White House spokesman Jay Carney said after the talks.
A short-term extension of mere months could cause Wall Street credit agencies to strip America of its gold-plated triple-A rating and increase interest rates for American consumers, Obama told them.
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