|Reid, left, and Boehner said their staff would work to reach a deal but acknowledged continued differences [Reuters]
The US president and senior legislators have said progress was made in urgent budget talks late on Wednesday and that negotiators will work through the night to try to avert a government shutdown.
Barack Obama met John Boehner, the Republican House of Representatives speaker, and Harry Reid, the Democratic senate majority leader, on Wednesday to try to reach a deal by Friday midnight, when a temporary government funding bill is set to expire.
Federal agencies' day-to-day operations through the end of the budget year are at stake and a government shutdown - the first in 15 years - would devastate an economy still recovering from the worst recession since the 1930s.
Obama urged both parties to compromise and said failure to reach agreement would hurt the economy just as it was gaining momentum.
He said differences remained despite the progress in Wednesday's meeting.
"It's going to require a sufficient sense of urgency to complete a deal and get it passed and avert a shutdown," Obama said.
He said the meeting with the legislators helped narrow oustanding issues.
"I thought the meetings were frank, they were constructive and what they did was narrow the issues and clarify the issues that are still outstanding," Obama.
After huge wins in last year's House elections gave them control of the lower chamber, Republicans have vowed to cut spending and bring the US deficit under control.
Emerging from the 90-minute Oval Office meeting, Boehner and Reid appeared jointly before reporters and vowed to keep working towards a deal, although they made clear that there were still deep divisions.
Republicans and Democrats have struggled to break a deadlock over measures to continue funding for government operations and keep more than 800,000 workers in their jobs past Friday's deadline.
Reid said the White House meeting was "very honest".
"I have confidence we can get this done. We're not there yet, but hope lies eternal," he said.
Boehner said there were "honest differences" but there was progress. He said there was no agreement on a figure for spending cuts.
The two leaders said their staffs would work to try to reach an agreement, and they would meet on Thursday morning to assess the work of their aides and continue to talk.
Obama and Reid plan to talk in the morning to determine whether another White House meeting is needed.
Also, late on Wednesday, House Republicans pushed through that chamber's budget committee a fiscal 2012 budget blueprint that would cut about $6tn in spending over the next decade.
The savings would be achieved largely by cutting domestic spending and reducing Medicare and Medicaid healthcare benefits for the poor and elderly over the long term.
A senior administration official said the processing of some tax refunds and audits, as well as small business loans would be halted, and operations of the Federal Housing Administration would be curbed.
Goldman Sachs, the investment firm, estimated a government shutdown lasting more than a week could cost the economy $8bn in missed federal spending, dragging down growth.
Both parties blamed each other for the political showdown, which will set the stage for more budget battles ahead and also promises to echo through the 2012 election campaign.
The budget fight is the biggest political test for both parties since Republicans swept to power in the House and made big Senate gains in last year's elections.
Boehner is under pressure to push for deeper cuts from fiscal conservatives aligned with the Tea Party movement who oppose any compromise. Democrats said the Tea Party was the driving force in the showdown.