House Republican efforts to pass legislation averting a US debt default and ending a partial government shutdown have collapsed, and a top ratings firm warned of a possible downgrade in the country's creditworthiness.
Just hours after unveiling it on Tuesday, Republican leaders - apparently lacking votes from their own rank-and-file - pulled legislation to reopen the government and raise the amount of money the Treasury can borrow to pay the nation's bills.
The setback came just two days before the Obama administration says the government will be out of money to pay debts.
The wrangling in the House had imposed a daylong freeze on Senate negotiations on a bipartisan compromise that had appeared ready to bear fruit a day earlier.
Shortly after the House efforts fell apart, aides said Senate leaders had renewed talks to reopen the government and prevent a default.
House Republican leaders had unveiled a bill to allow the Treasury to borrow normally until February 7 and to reopen the government with sufficient funds to carry it to December 15.
A spokesman for John Boehner, for the house speaker, had said it would be put to a vote on Tuesday night. But the bill had been stripped of key conservative demands related to President Barack Obama's healthcare plan, and Boehner soon pulled it.
The New York Stock Exchange fell 133 points after rising a day earlier when optimism spread that a deal might be at hand.
Bond rating on watch
Fitch Ratings announced after the markets closed that it was putting the government's AAA bond rating on watch because of uncertainty over the debt limit.
Fitch, one of the three leading US credit ratings agencies, said it expected the debt limit would be raised soon, but added, "the political brinkmanship and reduced financing flexibility could increase the risk of a US default."
The partial shutdown began 15 days ago 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 healthcare reform.
The 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 House Republicans have since dropped their demands to defund or delay the healthcare law, known as Obamacare.
The latest House proposal had also done away with plan to delay a medical device tax created under the health law, and another provision to impose tougher income verification standards on individuals and families seeking subsidies for care under the law.
Democrats had viewed both as concessions to Republicans, and deemed their inclusion as a violation of Obama's pledge not to pay a "ransom" to the Republicans for passing essential funding and borrowing measures.
The House measure would have kept one provision linked to the healthcare plan: Members of Congress, the president, vice president and thousands of aides would no longer be eligible to receive employer healthcare contributions from the government that employs them.
The Congress is trying to pass two measures that are normally routine: A temporary funding bill to keep the government running and the legislation to raise the borrowing limit.
But a hard-right tea party faction of Republicans in the House has seen both deadlines as a weapon to get their way on gutting the healthcare overhaul, designed to provide tens of millions of uninsured Americans with coverage.