Aides to both Senate Majority Leader Harry Reid and the Republican leader, Mitch McConnell, expressed revived optimism about chances for a swift agreement — by Wednesday at the latest — that could pass both houses. Their efforts toward a bipartisan resolution had seemed likely to bear fruit a day earlier before House conservative were given a last-minute chance for their version.
As hours ticked down toward a Treasury deadline, the likeliest compromise included renewed authority for the Treasury to borrow through early February and the government to reopen at least until mid-January.
While a day of secret meetings and frenzied manoeuvring unfolded in all corners of the Capitol, Democratic Sen. Barbara Mikulski stood on the Senate floor and declared that the U.S. was "hours away from becoming a deadbeat nation, not paying its bills to its own people and other creditors."
In New York, the Fitch rating agency warned that it was reviewing the government's AAA credit rating for a possible downgrade, though no action was near. The firm, one of the three leading U.S. credit-ratings agencies, said that "the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default."
The New York Stock Exchange fell 133 points after rising a day earlier when optimism spread that a deal might be at hand.
According to Treasury Secretary Jacob Lew, unless Congress acts by Thursday, the government will lose its ability to borrow and will be required to meet its obligations relying only on cash on hand and incoming tax receipts.
President Barack Obama and numerous other officials in government and finance have warned of severe economic consequences if federal obligations come due that can't be paid.
By all accounts, however, an end seemed near for the impasse that has once again exposed a government so divided that it sometimes borders on dysfunction.
Though the House failed to muster sufficient support for a conservatives-only bill in the Republican-majority chamber on Tuesday, enough Republicans there seem likely to join House Democrats to approve a bipartisan version if it can be approved by the Senate and sent to them.
Politically, neither party is faring well, but polls indicate Republicans are bearing the brunt of public unhappiness reflected in plunging approval ratings.
There was no indication Tuesday night of the terms of a possible deal under discussion by Reid and McConnell, although the contours of an agreement had already come into shape on Monday.
The Senate negotiations on a bipartisan compromise were put on hold Tuesday to give Speaker John Boehner and House Republicans time to craft a conservatives-only solution.
Congress is trying to pass two measures that are normally routine: A temporary funding bill to keep the government running and legislation to raise the borrowing limit.
House Republican officials unveiled their measure at midmorning, then revised it in hopes of building more support. In its final public form, it would have permitted the Treasury to borrow normally until Feb. 7 and the government to reopen with sufficient funds to carry it to Dec. 15.
Additionally, members of Congress, the president, vice-president and thousands of aides would no longer be eligible to receive employer health care contributions from the government that employs them.
The leadership projected confidence, and Michael Steel, a spokesman for Boehner said in a statement, "The House will vote tonight to reopen the government and avoid default."
Within a few hours though, objections came from all corners of the rank and file. And Heritage Action, a group with ties to the hardcore conservative tea party movement, announced its opposition to the measure it said "will do absolutely nothing to help Americans who are negatively impacted by Obamacare." The group said the vote would help determine which candidates it would support in next year's congressional elections.
That verdict came after Republicans jettisoned a pair of provisions that had drawn objections from the White House and Democrats. One would have delayed a medical device tax created to help fund the new health care law known as "Obamacare." The other would have imposed tougher income verification standards on individuals and families seeking subsidies for purchasing health insurance under the law.
Democrats had viewed both as concessions to Republicans, and deemed their inclusion as a violation of Obama's vow not to pay a "ransom" to the Republicans for passing essential funding and borrowing measures.
House Republican leaders, apparently lacking votes from their won rank-and-file, pulled their measure. That cleared the way for Senate leaders to renew talks to work out an agreement.
As it stood previously, the bipartisan Senate talks were focused on a plan to allow the Treasury to borrow freely through Feb. 7 and reopen the government with enough funds to carry over to mid-January.
Congressional negotiators would be appointed to seek a long-term deficit reduction plan, and in the meantime federal agencies would receive increased flexibility to deal with the impact of across-the-board spending cuts due to take effect on about Jan. 15.
In addition to ending the shutdown and raising the debt limit, the two Senate leaders had been considering a plan to delay a $63-per-person fee that the nation's health care overhaul would impose on companies for all who receive coverage under an employer-provided plan.
The day's events prompted an outbreak of partisan rhetoric.
Speaking with reporters, Boehner said, "I have made clear for months and months that the idea of default is wrong and we shouldn't get anywhere close to it."
Democrats jumped on Boehner and the plan he produced.
In unusually personal remarks, Reid said the top House Republican had "once again tried to preserve his role at the expense of the country."
That was a reference to a rebellious rank and file in the House, who routinely seek to push Boehner and the rest of the leadership to the right. A group met Monday night with Texas Sen. Ted Cruz, who last summer played a public role in a campaign to demand defunding of Obamacare as the price for preventing a partial government shutdown.
The partial shutdown began on Oct. 1 after House Republicans refused to accept a temporary funding measure to provide the money to run the government unless Obama agreed to defund or delay his signature health care reform. House Republicans also refused to move on needed approval for raising the amount of money the Treasury can borrow to pay the nation's bills.
The hard-right tea party faction of Republicans in the House has seen both deadlines as a weapon to get their way on gutting the health care overhaul, designed to provide tens of millions of uninsured Americans with coverage.
The White House refused to abandon Obama's signature legislative achievement, and the Democratic-controlled Senate rejected legislation to achieve the Republicans' goal.
House Republicans have since dropped their demands to defund or delay the health care law.
Senate Republicans, who must be elected on a statewide basis rather than in congressional districts drawn up to secure a Republican advantage, in particular were eager to end the partial government shutdown and avoid an even greater crisis if the government were to default later this month.
The partial government shutdown has furloughed 350,000 federal workers.
A proposed bipartisan Senate plan is far from the assault on Obama's health care reform law that conservative tea-party Republicans originally demanded in return for temporarily funding the government. It also lacks the budget cuts demanded by Republicans in exchange for increasing the government's $16.7 trillion borrowing limit.
Associated Press writers David Espo, Steven R. Hurst, Andrew Taylor, Donna Cassata, Henry C. Jackson and Alan Fram contributed to this report.