Talks stall as fiscal cliff looms

Washington - Two days of last-gasp talks produced no deal on Sunday between US political leaders struggling to averting a fiscal calamity due to hit the American and world economy within hours.

Party leaders in the US Senate groped for a compromise to head-off a punishing package of spending cuts and tax hikes that is due come into force on January 1 and which could roil global markets and plunge the US into recession.

Senate Republican minority leader Mitch McConnell warned that, despite through-the-night talks, negotiators were still a long way from success, as they raced against the ebbing 2012 calendar in search of a compromise.

McConnell said he received no response to a "good faith offer" to Senate Democrats and had spoken twice by telephone with his old friend and sparring partner Vice President Joe Biden in the hope of breaking the stalemate.

Senate Democratic Majority Leader Harry Reid agreed that talks were at a standstill, and warned that Americans could ring in the New Year with no deal to avert a budget disaster known as the "fiscal cliff."

"There is still significant distance between the two sides, but negotiations continue," Reid told the Senate, after huddling for nearly two hours with his Democratic caucus on one of the latest December Senate workdays in 50 years.

"There is still time left to reach an agreement, and we intend to continue negotiations," he said, as he ordered the Senate back into session at 11:00am (16:00 GMT) Monday, New Year's eve and the last day before the deadline.

Reid said Democrats were unwilling to brook talk of social security cuts.

"This morning, we have been trying to come up with some counteroffer to my friend's proposal," Reid told the Senate. "We have been unable to do that."

The already tense mood on Capitol Hill had soured during Sunday's confusing hours, when some lawmakers tossed out varying versions of what may or may not be in Democratic and Republican offers.

"I'm incredibly disappointed we cannot seem to find common ground. I think we're going over the cliff," Republican Senator Lindsey Graham said on Twitter.

Moderate Democrat Clair McCaskill was also pessimistic.

"This is definitely not a kumbaya moment," she said.

Earlier, President Barack Obama accused Republicans of causing the mess, saying they had refused to move on what he said were genuine offers of compromise from his Democrats.

"Now the pressure's on Congress to produce," Obama said, in an interview with NBC's "Meet the Press" that was recorded on Saturday, a day after he expressed modest optimism that a deal could be reached.

Obama said it had been "very hard" for top Republican leaders to accept that "taxes on the wealthiest Americans should go up a little bit, as part of an overall deficit reduction package."

But Republicans were irked by Obama's tone.

"I don't know if this is the president saying $250 (thousand) or 'Go to hell'," Graham told reporters, referring to Obama's insistence that taxes rise on households income greater than a quarter million dollars per year.

The Senate's number two Democrat, Dick Durbin, said Republicans want the tax threshold be raised to $550 000 per household and that Democrats might counter with $450 000, considerably higher than the president's $250 000.

But Reid warned: "We're still left with a proposal they've given us that protects the wealthy and not the middle class. I'm not going to agree to that"

If no deal is reached, a package of tax cuts for all Americans that was first passed by then-president George W. Bush will expire on January 1.

All American workers will see their own paycheck hit and the broader economy will suffer from massive automatic spending cuts across the government.

Experts expect the US economy to slide into recession if the standoff is prolonged, in a scenario that could cause turmoil in stock markets and hit prospects for global growth in 2013.

The president won re-election partly on a platform of raising taxes on the rich, but Republicans who run the House of Representatives oppose tax hikes as a point of principle and claim Obama is addicted to runaway spending.

Any deal must pass the Senate, before going to the House, where such is the power of the conservative bloc of the Republican Party, it is unclear whether any solution backed by Obama can win majority support.

If leaders fail to find agreement, Obama has demanded a vote on his fallback plan that would preserve lower tax rates for families on less than $250 000 a year and extend unemployment insurance for two million people.

Republicans admitted such an option could emerge on Monday.