Obama, lawmakers facing fresh doubts on debt deal

WASHINGTON (Reuters) - Sharply divided by partisan bickering, President Barack Obama and top Republicans face growing doubts on Thursday about the prospects for reaching a deal to avoid a potentially disastrous debt default.

With tensions running high in Washington political circles as the clock ticks toward an August 2 deadline for raising the national debt ceiling, the two sides will return for a fifth straight day of talks seemingly farther apart than ever.

The meeting follows an acrimonious session on Wednesday that laid bare the stark differences between the Democratic president and his Republican rivals over taxes and deficits, a battle whose outcome could have big implications as Obama seeks re-election in 2012.

Heightening the sense of anxiety hanging over already shaky negotiations, Moody's Investors Service jolted Washington on Wednesday with a warning that the United States may lose its top credit rating in the coming weeks if the $14.3 trillion limit on America's borrowing was not raised.

That sent the U.S. dollar tumbling against most major currencies. Stock futures and debt prices also fell.

The round of talks following Moody's warning was the stormiest yet. Obama told Republicans "Enough's enough" before ending a session that was marked by partisan recriminations, which raised more questions about whether a deal can be reached.

An agreement must be forged to raise America's debt limit by August 2 or the government will run out of money to pay its bills and default on some obligations, but the two sides have failed so far to bridge a sharp divide over taxes.

Failure to act could send shockwaves through the global financial system, Federal Reserve Chairman Ben Bernanke said on Wednesday. Obama has warned that the U.S. economy could be pushed back into recession.

Despite that, political brinkmanship has continued.

Eric Cantor, the No. 2 Republican leader in the House of Representatives, said Wednesday's meeting became so acrimonious that Obama walked out.

"He said he had sat here long enough. No other president, Ronald Reagan wouldn't sit here like this," Cantor told reporters.

Democratic officials called Cantor's account overblown and said Obama simply finished impassioned remarks, then rose and went into the Oval Office.

STRUGGLING TO CUT A DEAL

Bernanke on Wednesday said if the debt limit is not raised in time, the United States would pay its bondholders first. That would mean other payments, such as Social Security to the elderly, would be the first hit -- a political nightmare for both lawmakers and the president.

Obama accused Republicans of partisan posturing that was keeping the two sides from agreement.

He has sought to cast himself as a centrist in the debate. His 2012 re-election hopes hinge not only on reducing the United States' 9.2 percent unemployment but on his appeal to independent voters who are increasingly turned off by the rancor in Washington and want the country's fiscal house in order.

The president and lawmakers met for nearly two hours on Wednesday. Republicans demand $2.4 trillion in spending cuts in return for supporting an increase in the debt limit. Democrats and Obama insist on tax increases for the wealthy as part of a deal.

The two sides will talk again starting at 4:15 p.m. EDT on Thursday, and tax will dominate the discussions. The president has set a Friday deadline for agreeing a way forward.

Democratic officials said Obama has backed $1.7 trillion in cuts and is prepared to accept more. But congressional Democrats don't agree on all of those cuts said Cantor, who put the total area of agreement at $1.4 trillion.

(Additional reporting by Jeff Mason; Editing by Doina Chiacu)

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