Senate Democratic leader Harry Reid and Senate Republican leader Mitch McConnell announced a deal yesterday to raise the US debt limit and end the government shutdown.
Republican Senator Ted Cruz, who had earlier opposed any compromise unless it defunded Obamacare, said he did not intend to delay consideration of the measure, which was expected to be approved later in the day by the Republican-led House of Representatives.
Major US stock indexes rose more than 1 per cent on optimism that lawmakers were finally reaching a deal to end the weeks-long fiscal impasse.
"The compromise we reached will provide our economy with the stability it desperately needs," Reid said.
President Barack Obama urged Congress to move swiftly. White House spokesman Jay Carney said Obama was grateful to the leaders of the Senate and said the president wanted Congress now to ensure "the government reopens and the threat of default is removed".
The framework negotiated by Reid and McConnell would fund the government through to January 15 and suspend the debt limit until February 7, setting up another round of confrontations.
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With the government's borrowing authority set to run out today, aides said House Speaker John Boehner would allow the deeply divided House to vote on the Senate plan for a short-term increase in the debt limit and a reopening of government, which was expected to pass with mostly Democratic votes.
The timing of the House and Senate votes was unclear.
The deal would extend US borrowing authority until February 7, although the Treasury Department would have tools to temporarily extend its borrowing capacity beyond that date if Congress failed to act early next year.
The agreement would also fund government agencies until January 15, ending a partial government shutdown that began on October 1.
The moves were a bruising defeat for Republican conservatives who had demanded changes to Obama's health care law before they would agree to fund the government.
It was unclear if Boehner's leadership position would be at risk in the political fallout, but opinion polls show Republicans have taken a political beating in the showdown as they head into next year's congressional polls.
"The deal we've got, you know the old saying, 'We may have left a little bit on the table?' We left everything on the table," Republican Senator Lindsey Graham said.
"This has been a very bad two weeks for the Republican brand, conservatism."
Both Democrats and Republicans were confident the House of Representatives would have enough votes to pass the bipartisan Senate plan, a top Democratic aide said.
Aides to Boehner called senior Senate staff to say the House would vote first on the measure, the aide said. The aide said it appeared certain to be approved with mostly Democratic votes.
Republican Kevin Brady said he believed that House Republicans' inability to come up with their own plan to raise the debt limit meant Boehner would have to accept whatever Senate leaders come up with.
The Senate accord was being announced one day after a ratings company placed America's AAA credit rating on a negative watch. Fitch Ratings has said it could cut the sovereign credit rating, citing the political brinkmanship over raising the debt ceiling.
The deal that emerged yesterday would basically give Obama what he has demanded for months - a straight-forward debt limit hike and government funding bill.
The Dow Jones industrial average rose 193.43 points, or 1.28 per cent, to 15,361.44.
"Market participants on balance believe something will get done, and it's going to get done in typical Washington fashion - at the eleventh hour," said Art Hogan, managing director at Lazard Capital Markets in New York.
Reuters, Associated Press, Bloomberg