US Democratic senators reached agreement last night with a small group of Republicans on an $800 billion economic stimulus measure at the heart of President Barack Obama's plan for tackling the worst recession to hit the US in decades.
Democrats said a vote on passage of the measure - drafted by leaders of a group of moderate lawmakers from both parties - and closely watched overseas as a sign of US commitment to help revive the world economy, would be held on Tuesday.
"We are pleased the process is moving forward and we are closer to getting Americans a plan to create millions of jobs and get people back to work," said White House spokesman Robert Gibbs.
With the United States in the grip of the worst economic crisis in more than 70 years - a report published yesterday showed nearly 600,000 jobs were lost in January - Obama has demanded that a bill be put on his desk by February 16.
After five days of negotiations, Democrats agreed to cut tens of billions of dollars from their earlier $937 billion proposal described by critics, mostly Republicans, as unwarranted spending.
Democratic Senator Ben Nelson, a leader of the group, said the stimulus compromise would help to jolt the struggling economy through middle-class tax cuts and targeted investment.
"We trimmed the fat, fried the bacon and milked the sacred cows," he said on the Senate floor.
The group announced the agreement was for $780 billion in spending and tax cuts, but aides said the total could be as much as $47 billion more because of tax incentives senators previously added to boost flagging home and auto sales.
The Senate met as official data showed US job losses accelerating in January and the unemployment rate surging to a 16-year high. Despite that news, US stocks rallied for a second day yesterday partly in anticipation of a possible accord on the stimulus.
If the measure passes, lawmakers would have to resolve differences between it and an $819 billion version of the legislation approved last week by the House of Representatives without a single Republican vote.
Once a final bill is crafted and passed by both chambers, the measure would be sent to Obama to sign into law.
While a deal on the measures marks a solid start for Obama, who took office on January 20, the largely party-line support in the House and Senate was a setback in his drive to foster a new spirit of bipartisan cooperation in Washington.
Opponents complained much of the new spending amounted to little more than a liberal wish list, and more should have been devoted to tax relief and job-creating construction projects instead of new rounds of other government spending.
Some of the biggest cuts in the Senate compromise were $40 billion in aid to states, $16 billion for school construction, and $5.8 billion for public health efforts.
Obama had said he could accept a package in the $800 billion range and that failure to act could turn crisis into catastrophe. He rejected demands for wholesale changes by Republicans, saying it was their policies that created the crisis in the first place.
Democratic Senator Kent Conrad said that some 80 per cent of the package would be disbursed over the first two years, more than the 75 per cent Obama had demanded.
Details of the administration's other major initiative to address the crisis - how it will spend the remaining $350 billion of a bank rescue program agreed to under former President George W. Bush - are due to be announced on Monday.