Obama was due to meet congressional leaders from both parties at the White House early this morning (Hong Kong time) to try to revive negotiations to avoid tax increases and spending cuts - together worth US$600 billion - that will begin to take effect on January 1. Analysts fear such measures could wipe as much as 4 per cent off the country's economy, if left unchecked.

The Republican-controlled House of Representatives convened a session for tomorrow, in order to be ready to legislate if an agreement takes shape.

An unidentified Obama aide said the president was planning to offer a scaled-back budget package to lawmakers. Congress members were divided on the odds of success, with a few expressing hope, some talking as if they had abandoned it and some suggesting Congress might try to stretch the deadline into the first two days of January.

House Republican leader Eric Cantor advised members to be prepared to meet up to January 2, the final day before the new Congress is sworn in.

It "doesn't feel like anything that's very constructive is going to happen" at the meeting with Obama, said Republican Senator Bob Corker. "It feels more like optics than anything that's real."

The two parties remain far apart, particularly over plans to increase taxes on the wealthiest. But one Republican, Jeff Flake, held out the prospect that if Obama offered significant spending cuts, Republicans might compromise on taxes.

The coming days are likely to see either intense bargaining over numbers, or political theatre as each side attempts to avoid blame if a deal looks unlikely.

"Hopefully, there is still time for an agreement of some kind that saves the taxpayers from a wholly, wholly preventable economic crisis," Mitch McConnell, the top Republican in the Democratic-controlled Senate, said.

Senate Democratic leader Harry Reid urged Republicans in the House to prevent the worst of the fiscal shock by getting behind a Senate bill to extend existing tax cuts for all except households earning more than US$250,000 a year. Both he and House Speaker John Boehner, as well as McConnell and House Democratic leader Nancy Pelosi, were to meet Obama, who arrived back at the White House on Thursday from a brief vacation in Hawaii that he had cut short.

Obama is likely to meet the toughest resistance from Republicans in the House, where a group of several dozen fiscal conservatives have opposed any tax rises at all. Flake said Republicans were resigned to seeing some sort of increase in top income tax rates, but will push back if Obama does not offer spending cuts.

Daiwa Securities economist Emily Nicols said the chances of a deal before the year-end were now slipping.

Francis Lun, managing director of Lyncean Holdings in Hong Kong, said: "Even if [the US economy] falls into the fiscal cliff, you will only reduce the deficit by about US$100 billion. In Chinese terms, it's like trying to douse a fire with a cup of water. They should do what Europe has done and try to impose austerity."