The US Senate appeared ready to announce a last-minute deal on Wednesday to avert a historic lapse in the government's borrowing ability and a potentially damaging debt default.
But even if the Senate and House of Representatives manage to overcome procedural hurdles to seal the deal before Thursday - when the Treasury says it will exhaust its borrowing authority -- it will only be a temporary solution that sets up the prospect of another showdown early next year.
Major US stock indexes rose more than 1 percent on optimism that lawmakers would finally end the weeks-long fiscal impasse, but cautious investors are still wary over the final outcome. Although the cost of insuring US debt hit its highest in over two years, the dollar held its ground against other currencies.
Senate Majority Leader Harry Reid and Republican leader Mitch McConnell were close to finishing a fiscal plan that could be considered by the full Senate later on Wednesday. The leaders were expected to announce a deal when the Senate convened at noon (1600 GMT).
Weeks of bitter fighting among Democrats and Republicans over President Barack Obama's signature healthcare reform law led to a two-week government shutdown, sidelining hundreds of thousands of federal workers.
The initial fight over the healthcare law turned into a bigger battle over the debt ceiling, threatening a default that would have reverberations around the world.
"If we don't get a default, it would be like Y2K. People were staying up all night worried about what would happen during that deadline. Then nothing happened," said David Keeble, global head of interest rate strategy with Credit Agricole Corporate & Investment Bank in New York, referring to worries about the millennium computer bug in 2000.
Both Democrats and Republicans are confident that the US House of Representatives will have enough votes on Wednesday to pass the bipartisan Senate plan, a top Democratic aide said.
Aides to House Speaker John Boehner, the top Republican in Congress, called senior Senate staff to say the House would vote first on the measure, the aide said, adding that it appears certain to be approved with mostly Democratic votes.
Lawmakers are racing against time. While analysts and US officials say the government will still have roughly $30 billion in cash to pay many obligations for at least a few days, the financial sector may begin to seize up on Thursday if no deal is secured.
"I think folks on both sides of the aisle in the Senate are ready to get this done," Republican Senator Saxby Chambliss of Georgia told National Public Radio on Wednesday, a day after chaotic developments frayed the nerves of many members of Congress and global financial markets.
Even if a deal is reached, it must still clear the full Senate and possible procedural snags before moving to the fractious House of Representatives, which was unable to produce its own deal on Tuesday.
"Today is definitely not the day to be conducting any serious business as traders across the globe will be hypnotized by their TVs/terminals and anxiously waiting for something to hit the news wires," Jonathan Sudaria, a trader at Capital Spreads in London, wrote in a client note.
Fitch Ratings warned it could cut the US sovereign credit rating from AAA, citing the political brinkmanship over raising the debt ceiling.