World holds breath as US government shutdown imminent

With a shutdown of the US government hours away, Republicans and Democrats blamed each other Monday for a stand-off that has left hundreds of thousands of government workers on the brink of being sent home.

Lawmakers in the bitterly divided Congress had until midnight (0400 GMT) to pass a stopgap budget measure, but there was no sign of a breakthrough.

President Barack Obama has warned a freeze in non-essential federal spending could have catastrophic effects on the shaky economic recovery, and cost thousands of jobs.

But Congressional leaders have been unable to wrangle a compromise from feuding clans of lawmakers, arguing instead over who takes the blame for the first shutdown in 17 years.

House Speaker John Boehner took to the floor to defend Republican legislation that would defund Obama's signature health care law -- a non starter for Democratic-led Senate.

"This law is not ready for prime time. The House has done its work," Boehner said.

"Senate decided not to work yesterday. Well my goodness, if there's such an emergency, where are they?"

The Republican leadership gathered in Boehner's office, but one congressman leaving the meeting said there was no path forward yet.

If the deadline expires without a deal the failure will have a global impact. Oil prices slid and European and Asian shares fell, amid fears for the world's largest economy.

And, at a local level, as the Washington day began staff at federal agencies were warned that their children would not be able to attend government daycare centers on Tuesday.

The National Zoo announced that it would close, and it's popular livefeed of the first weeks of life of its baby panda go offline.

Some members of Congress tried to put a brave face on the impasse with 15 hours left to thrash out an improbable compromise.

But most observers agreed the moves were dead in the water from the moment Republicans linked budget legislation to a bid to thwart Obama's health care law.

After the Senate passed a straightforward spending bill on Friday, the House countered by attaching amendments seeking a one-year delay to Obamacare and the repeal of a medical device tax which helps fund the law.

Democratic Senate Majority Leader Harry Reid, who refused to call the chamber into session over the weekend despite the looming deadline, warned that this would not stand.

"The Senate will do exactly what we said we would do and reject these measures," Reid spokesman Adam Jentleson said.

"At that point, Republicans will be faced with the same choice they have always faced: put the Senate's clean funding bill on the floor and let it pass with bipartisan votes, or force a Republican government shutdown."

As lawmakers traded blame, the Democratic leadership sounded resigned about a pending shutdown.

Asked if he believed government would shutter on Tuesday, Reid's number two Senator Dick Durbin said: "I'm afraid I do."

Boehner has been under intense pressure from a small band of conservative diehards who forced the party to double down on their anti-Obamacare strategy.

With polls showing most voters would blame a shutdown on the Republicans rather than Obama, Reid insisted: "The American people will not be extorted by Tea Party anarchists."

But Boehner branded the brinksmanship "an act of breathtaking arrogance by the Senate Democratic leadership."

Some Asian markets fell sharply, and Europe followed suit, albeit in part because of fears for the political crisis in Italy.

Oil prices were also down, and analysts said traders were following the situation in the United States closely.

"Things are far from the 'panic stage', but they don't have to be for investors to be spooked by the apparent intractability of the US political deadlock," said Tachibana Securities market analyst Kenichi Hirano.

US and foreign investors fear a shutdown will create a poisonous environment ahead of mid-October talks to increase the amount of money the country is authorized to borrow.

If the debt ceiling is not raised, Washington could run out of cash and default on its loan payments, and Republicans have already warned they will make this their next battlefield.