By Robert Schroeder, MarketWatch
WASHINGTON (MarketWatch) -- Senate leaders restarted talks on Tuesday night to reopen the government and lift the U.S. debt ceiling after House Republicans' plans to vote on their own proposal fell apart.
Spokesmen for Senate Majority Leader Harry Reid, a Nevada Democrat, and Minority Leader Mitch McConnell, a Kentucky Republican, said their talks had resumed.
"Senator Reid and Senator McConnell have re-engaged in negotiations and are optimistic that an agreement is within reach," Reid spokesman Adam Jentleson said on Twitter.
McConnell spokesman Don Stewart offered a similarly worded statement, saying: "Given tonight's events, the [Senate] leaders have decided to work toward a solution that would reopen the government and prevent default. They are optimistic an agreement can be reached."
The abrupt decision to cancel voting on the House plan was a clear sign Republicans didn't have the votes to approve the bill, which would have opened the government through Dec. 15. The debt limit would have been extended to Feb. 7.
A plan discussed earlier by Reid and McConnell would have extended the debt limit for the same amount time, but would fund the government until Jan. 15.
The House's rules committee postponed a meeting on the bill shortly after Heritage Action, a conservative group, said it opposed the bill because it didn't stop "Obamacare's massive new entitlements."
Adding to the drama in Washington, Fitch Ratings Service put the U.S. credit rating on negative watch. Reid had warned Tuesday morning that credit-rating agencies could downgrade U.S. debt "as soon as tonight" without action to raise the debt limit.
Tuesday morning, House Speaker John Boehner told reporters that Republican leaders were "working with our members on a way forward." But by the end of the day, it became clear that deal-making was shifting back to the Senate.
House and Senate lawmakers have been scrambling to solve the twin impasses. The government shutdown is on Day 15, and the Treasury's Thursday deadline for raising the borrowing limit is rapidly approaching.
"Extremist Republicans in the House are attempting to torpedo the Senate's bipartisan progress," Reid said on the Senate floor Tuesday. He said he was "blind-sided" by the House proposal.
U.S. stocks dropped Tuesday, with the Dow Jones Industrial Average (DJI) ending 134 points in the red, as investors waited for a deal from Washington. (Read Market Snapshot.)
Yields on short-term Treasurys most impacted by the debt-ceiling standoff spiked again Tuesday. (Read Bond Report.)
Citigroup's chief financial officer said the bank had got rid of short-term securities at risk. ((Read more on Citigroup's position:) http://blogs.marketwatch.com/thetell/2013/10/15/citigroup-cfo-reveals-bank-has-sold-its-short-term-treasurys/.)
The Treasury Department says that the debt ceiling must be lifted by Thursday or the government would lose the ability to borrow to cover its obligations. But the Treasury will still have some money to pay incoming bills. (Read frequently asked questions about the debt ceiling.)
A Treasury spokesman said Fitch's announcement "reflects the urgency with which Congress should act to remove the threat of default hanging over the economy."
The House Republican bill sought temporary restrictions on the Treasury's ability to use so-called extraordinary measures to borrow and spend normally when it bumps up against the debt ceiling. Insurance subsidies under Obama's health law for members of Congress -- as well as their staffs -- and the administration would also be blocked.
A provision to waive the medical device tax was dropped from the House plan.
The White House called the House Republican proposal an attempt to "appease a small group of tea-party Republicans who forced the government shutdown in the first place."
House Minority Leader Nancy Pelosi called the Republicans' bill "a decision to default."
Speaking Tuesday on Bloomberg TV, S&P's managing director of sovereign ratings John Chambers said the firm believes there will be "an 11th-hour deal" and that the U.S. will pay its debts.
In August 2011, S&P downgraded the U.S.'s triple-A rating for the first time, saying a budget deal didn't go far enough to address the outlook for the country's finances.
Meanwhile, the impasse in Washington showed fresh signs of rippling through the U.S. economy.
"When people hear of a stalled economy and government shutdown, it's not helping" their confidence, said Bill Simon, the head of Wal-Mart Stores Inc.'s (WMT) U.S. unit.
He said the retail giant is "battling through that" but added that the company has "a lot of growth opportunities." ((Read more on Behind the Storefront blog: http://blogs.marketwatch.com/behindthestorefront/2013/10/15/walmart-u-s-s-next-growth-plan-involves-thinking-small/.))
-Robert Schroeder; 415-439-6400; AskNewswires@dowjones.com
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(END) Dow Jones Newswires
10-15-13 1959ETCopyright (c) 2013 Dow Jones & Company, Inc.
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