REPUBLICANS and Democrats in Congress have reached an agreement with President Barack Obama to raise the limit on US borrowing and forestall an unprecedented American default.

President Obama announced the deal from the White House, marking the start in the final chapter of one of the nastiest and divisive episodes in recent American political history.

Shortly after Senate Majority Leader Harry Reid and his Republican counterpart, minority leader Mitchell McConnell, endorsed the plan on the Senate floor, Obama went to the White House press room to add his support for the deal. It meets one of his key demands, raising borrowing power sufficiently to keep the partisan poison pill from returning to the national agenda until after the 2012 election. It does not include any tax increases that Obama had pressed hard for to include.

House Speaker John Boehner, in a conference call with Republican members of the lower chamber, said the deal was a good one that met the demands of all Republicans.

Bowing to the still unknown outcome of congressional action, Obama said important votes remained to be taken but that leaders of both parties in both houses of Congress were agreed to a plan that would initially cut about $1 trillion from U.S. spending, "the lowest level of domestic spending since Dwight Eisenhower was president" in the 1950s.

"Is this the deal I would have preferred," Obama asked, answering his own question with one word. "No."

But he said: "Most importantly it will allow us to avoid default and end the crisis that Washington imposed on the rest of American. An it will allow us to lift the cloud of debt and uncertainty" that has hung above the United States for weeks.

No votes were expected in either house of Congress until Monday at the earliest, to give rank and file lawmakers to review the package. Tuesday is the deadline to avoid a U.S. default on payments to investors in Treasury bonds, recipients of Social Security pension checks, those relying on military veterans benefits and businesses that do work for the government.

Obama and many economists and financial experts predicted global chaos and plunging stock markets had no deal been reached by midnight Tuesday.

If approved in Monday votes, the compromise would presumably preserve America's sterling credit rating, reassure investors in financial markets across the globe and possibly reverse the losses that spread across Wall Street in recent days as the threat of a default grew.

The broadest outlines of the emerging plan, a deal that involved deep negotiations between McConnell and Vice President Joe Biden, would raise the federal debt limit in two stages by at least $2.2 trillion, enough to tide the Treasury over until after the 2012 elections.

Big cuts in government spending would be phased in over a decade. Thousands of programs - the Park Service, Internal Revenue Service and Labor Department accounts among them - could be trimmed to levels last seen years ago.

No benefit cuts were envisioned for the Social Security pension system or Medicare, the federal program that provides health care payments to the elderly. But other programs would be scoured for savings. Taxes would be unlikely to rise.

The first step would take place immediately, raising the debt limit by nearly $1 trillion and cutting spending by a slightly larger amount over a decade.

That would be followed by creation of a new congressional committee that would have until the end of November to recommend $1.8 trillion or more in deficit cuts, targeting benefit programs such as Medicare, Medicaid and Social Security, or overhauling the tax code. Those deficit cuts would allow a second increase in the debt limit, which would be needed by early next year.

If the committee failed to reach its $1.8 trillion target, or Congress failed to approve its recommendations by the end of 2011, lawmakers would then have to vote on a proposed constitutional balanced-budget amendment.

If that failed to pass, automatic spending cuts totaling $1.2 trillion would automatically take effect, and the debt limit would rise by an identical amount.

Social Security, Medicaid and food stamps would be exempt from the automatic cuts, but payments to doctors, nursing homes and other Medicare providers could be trimmed, as could subsidies to insurance companies that offer an alternative to government-run Medicare.

Any agreement will have to be passed by the Democratic-controlled Senate, which was seen as assured, and Republican-controlled House, which still could face a major tussle, before going to the White House for Obama's signature. With precious little time remaining, both chambers had been on standby throughout the day Sunday.

Some Republicans were said to still be balking over proposed cuts in defense spending. It also was unclear how the 87 new House members, voted in with support from the low-tax, small-government tea party wing of the Republican Party, would vote. But it was believed that both Boehner, the Republican House speaker, and Reid, leader of majority Democrats in the Senate, felt certain they could garner sufficient votes.

The coming days will be clogged with statements from both Republicans, especially the tea party caucus, and Democrats as they try to convince their constituencies that they held firm and won the day in the bitter divide over how the government operates and what it owes to its citizens.