Obama announces US deficit 'down-payment' deal

He said the deal would cut $1tn of spending over 10 years, and set up a committee to report by November on a proposal to further reduce the deficit.

Congress however still has to approve the deal, and the vote is expected to take place on Monday, just a day ahead of the Tuesday deadline to raise the $14.3tn (£8.7tn) debt limit.

"I want to announce that the leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default, a default that would have had a devastating effect on our economy," Obama said.

The US president said it was not the deal he would have preferred, but noted that the compromise plan would make a "serious down payment" on the US deficit.

Democrats and Republicans in Washington have been deadlocked over finding a plan on how to cut spending and raise the debt limit in the face of the approaching Tuesday deadline.

The US limits by law the total amount of debt its government can run up in order to pay its bills, and the Obama administration has been under mounting financial pressure.

In Tokyo, shares rose 1.7% after Obama's announcement, and the dollar rose briefly above 78 yen from 76.7 yen on Friday. Hong Kong shares were set to open 1.3% higher.

"We welcome the US debt deal and hopefully this will stabilise markets," Japan's Chief Cabinet Secretary Yukio Edano said.

Republican House leader John Boehner said he hoped to hold Congressional votes on the plan "as soon as possible".

"This isn't the greatest deal in the world. But it shows how much we've changed the terms of the debate in this town," he said.

Obama said the process of agreeing on a plan had been messy and had taken "far too long", and he called on parties to support the plan in votes in Congress.

He stressed that any solution had to be "balanced", and that cuts would not be so abrupt as to create a drag on the US economy.

The recommendations of the bipartisan committee tasked with identifying further savings by November would also be put to a vote in Congress, he said.

The focus now shifts back to Congress with votes expected on Monday

According to Boehner, those savings would amount to at least $1.5tn, bringing the total spending cuts under the plan to about $2.5tn.

That would be higher than the proposed rise in the debt limit, which an administration official said would amount to $2.1tn.