Thursday's deadline when the US Treasury says the government will reach its borrowing limit, the Republican-controlled House and Democratic-led Senate worked on competing plans to avoid an economically damaging default on the country's debt.
Senate leaders were close to a deal that would reopen the government and raise the debt limit until early 2014, while an alternative plan proposed by House Republican leaders failed to gain enough support in a closed-door meeting for the House to proceed.
"There are a lot of opinions about what direction to go.
There have been no decisions about exactly what we will do," House Speaker John Boehner told reporters after the meeting, repeating that he was determined not to allow a default and Republican efforts would continue.
The House Republican disarray raised questions about what the House will be able to pass. Conservative House members, driven by support from Tea Party small-government activists, have demanded changes to Obama's signature healthcare law as part of any budget deal.
Those demands sparked the shutdown that began with the dawn of the new fiscal year on Oct. 1, temporarily throwing hundreds of thousands of government employees out of work.
US President Barack Obama walks to the Oval Office of the White House after visiting Martha's Table in Washington, DC, as the crisis over a US government shutdown and debt ceiling standoff continues into the third week of the shutdown. (AFP Photo)
If Congress fails to reach a deal by Thursday, checks would likely go out on time for a short while for everyone from bondholders to workers who are owed unemployment benefits. But analysts warn that a default on government obligations could quickly follow, potentially causing the US financial sector to freeze up and threatening the global economy.
The House Republican proposal floated on Tuesday would have funded the government through Jan. 15, and raised the $16.7 trillion debt ceiling by enough to cover the nation's borrowing needs through Feb. 7, similar to the Senate plan, aides said.
But unlike the Senate, it would include a two-year suspension of the medical device tax included in Obama's healthcare law, and a requirement that members of Congress and the administration be covered under the law.
The House version also would not allow the US Treasury to renew its extraordinary cash management measures to stretch borrowing capacity for months, which had tentatively been allowed under the Senate plan.
The White House and Senate Democrats quickly rejected the House draft plan as not workable.
'Partisan attempt' to appease tea party
Senate Democratic Leader Harry Reid said the Republican plan was "partisan attempt to appease a small group of Tea Party Republicans who forced the government to shut down in the first place."
"I am very disappointed with John Boehner who once again tried to preserve his role at the expense of the country," Reid said.
Senate Majority Leader Sen. Harry Reid, D-Nev., is surrounded by reporters after leaving the office of Senate Minority Leader Sen. Mitch McConnell, R-Ken., on Capitol Hill in Washington. (AP Photo)
But Republican Senator John McCain of Arizona, who has blamed House Republicans for the shutdown, blasted the White House and Senate Democrats for promptly rejecting Boehner's latest plan.
"I urge my Democratic colleagues, let's sit down and work this out," McCain declared, his voice rising. "Let's get this resolved."
"To categorically reject what the House of Representatives and the speaker are doing - and I think he is pretty courageous in what he's doing - in my view is not serving the American people," McCain said.
Obama will meet with House Democratic leaders at 3.15pm (1915 GMT) to discuss their options. Reid and Senate Republican Leader Mitch McConnell negotiated the tentative Senate plan on Monday, and Reid said he was optimistic about reaching a final deal this week.
"There are productive negotiations going on with the Republican leader. I'm confident that we'll be able to reach a comprehensive agreement this week in time to avert a catastrophic default on the nation's bills," Reid said on the Senate floor.
Even as confusion reigned in Congress, markets were still betting a deal would be struck before the debt limit is reached.
Rates on Treasury bill issues due in October to November fell to their lowest level in a week, although still elevated compared with three weeks ago. The Standard & Poor's 500 Index was just 0.3 percent lower in afternoon trade.
Tim Ghriskey, Chief investment officer of Solaris Group in Bedford Hills, New York, said the debt limit used to be raised like clockwork. "But the financial markets are holding up here and pretty much ignoring the situation, believing there will eventually be resolution."
Numerous polls show Republicans have taken a hit in opinion polls since the standoff began and the government shutdown Oct. 1. A Washington Post/ABC News poll released on Monday found that 74 percent of Americans disapprove of the way congressional Republicans have handled the standoff, compared with a 53 percent disapproval rating for Obama.
Another survey released by Gallup on Tuesday showed American confidence in the US economy fell another five points last week as the government shutdown continued.
The crisis is the latest in a series of budget battles in recent years that have hurt consumer confidence and weighed on the economy. A Monday estimate by the Peter G. Peterson
Foundation, a think tank, said the uncertainty from the frequent showdowns had boosted the unemployment rate by 0.6 of a percentage point, or the equivalent of 900,000 jobs since late 2009.