By Richard Cowan and Thomas Ferraro
WASHINGTON, Oct 15 (Reuters) - Stop-start negotiations to end the U.S. fiscal impasse left congressional leaders and President Barack Obama desperately searching on Tuesday for a way to reopen the government and raise the country's debt limit ahead of a Thursday deadline.
Fitch Ratings warned it could cut the sovereign credit rating of the United States from AAA citing the political brinkmanship over raising the federal debt ceiling.
Fitch's action emphasized how close to an economically damaging default Washington has come and sent U.S. stock futures lower.
Republicans in the fractious House of Representatives said they would try a new approach after their first attempt crash-landed on Tuesday. But differences with an emerging Senate proposal could complicate prospects for final passage before Oct. 17, when the U.S. Treasury says the government will reach its borrowing limit.
The first alternative plan from House Republican leaders failed to gain enough support in a closed-door morning meeting for the House to proceed. The disarray raised questions about what the House will ultimately be able to pass and stoked 11th-hour uncertainty.
"We're going to continue to work with our members on both sides of the aisle to try to make sure that there is no issue of default, and to get our government reopened," House Speaker John Boehner told reporters after the meeting.
The Senate had appeared to be on a productive track with their own tentative bipartisan fiscal deal, but negotiators halted talks on Tuesday as they waited for House Republicans to move first.
The new plan from House Republicans would not include a previous effort to delay a tax on medical devices that would be used to pay for Obama's healthcare plan. Obama had objected to that proposal.
But the new plan, which would extend the federal debt limit until Feb. 7 like the Senate, would only provide government funding until Dec. 15. The Senate, which had been close to an agreement, would keep the government open longer, until Jan. 15.
The House will vote on their plan later on Tuesday, Republican Representative Devin Nunes of California told reporters. It is unclear when the Senate will act.
The U.S. Treasury Department seized on the downgrade threat to press Congress. "The announcement reflects the urgency with which Congress should act to remove the threat of default hanging over the economy," a Treasury spokesperson said.
After the Fitch announcement, S&P 500 futures fell 9.6 points while Dow Jones industrial average futures sank 60 points and Nasdaq 100 futures fell 7.5 points.
FITS AND STARTS
In the coming hours, much of the focus will be on Boehner and whether he agrees to the demands of the more conservative wing of his party.
Conservative House members, driven by the Tea Party small-government faction, have continued to push for changes to Obama's signature healthcare law as part of any budget deal.
Those demands sparked the partial government 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.
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 U.S. financial sector to freeze up and threatening the global economy.
Earlier on Tuesday, lawmakers expressed hope that the Senate could vote as soon as Wednesday on a deal being hashed out between Senate Democratic Leader Harry Reid and Republican Leader Mitch McConnell.
"We were on track and Boehner stepped in," Richard Durbin of Illinois, the No. 2 Senate Democrat, told reporters. "McConnell is waiting on Boehner and Boehner is waiting on his caucus."
After Durbin's comments, markets got increasingly nervous about the prospects of a last-minute deal.
The House Republican proposal initially 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 have included the 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.
Both House versions would not allow the U.S. Treasury to renew its extraordinary cash management measures to stretch borrowing capacity for months, which had tentatively been allowed under the Senate plan.
Numerous polls show Republicans have taken a hit in opinion polls since the standoff began and the government shutdown. 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 U.S. 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.