By DAVID ESPO
AP Special Correspondent
WASHINGTON (AP) - After weeks of stubborn gridlock, the Senate's top two leaders raced on Monday to reach an agreement that could head off a Treasury default that threatens severe national economic damage and reopen the government after a two-week partial shutdown.
As a midweek deadline neared, the stock market turned positive on bullish predictions from the two longtime antagonists at the center of the talks, Majority Leader Harry Reid for the Democrats Republican leader Mitch McConnell for the GOP.
Under the terms they were discussing, the $16.7 trillion federal debt limit would be raised enough to permit the Treasury to borrow normally until mid-February if not several months longer. The government would reopen with funds sufficient to operate until mid-January at levels set previously. The government has been partly closed since Oct. 1, and the administration says the Treasury will run out of borrowing authority to fully pay the nation's bills on Thursday.
Additionally, officials said there was some thought being given to repealing a $63 fee, imposed by the big health care overhaul, that companies must pay for each person they cover beginning in 2014.
Visiting a charity not far from the White House, President Barack Obama blended optimism with a slap at Republicans.
"My hope is that a spirit of cooperation will move us forward over the next few hours," he said. And yet, he added, "If we don't start making some real progress both in the House and the Senate, and if Republicans aren't willing to set aside some of their partisan concerns in order to do what's right for the country, we stand a good chance of defaulting."
Stock prices, which had risen strongly late last week on hopes of an agreement, were down at the start of the day but then pushed higher as the Senate leaders voiced optimism. The Dow Jones industrial average rose 64 points.
Reid and McConnell met twice before midafternoon, their sessions sandwiched around a White House announcement that Obama was calling them and the party leaders in the House for the second time in less than a week to discuss the economy-threatening crises. The meeting was subsequently postponed and it was not clear when it might be rescheduled.
Any legislation would require passage in the Senate and also in the House, where a large faction of tea party-aligned lawmakers precipitated the shutdown two weeks ago despite the efforts of both McConnell and Republican Speaker John Boehner. In the days since, polls show a marked deterioration in public support for the GOP.
McConnell also met with Boehner during the afternoon.
Officials said Reid and McConnell were discussing legislation to raise the government's debt limit until mid-February, staving off the possible default. It was not clear if the terms under discussion would permit Treasury Secretary Jacob Lew to employ a series of measures that could add additional months to the extension, as administrations in both parties have done in recent years.
In addition to approving legislation to fund the government until late this year, Reid and McConnell considered appointment of House and Senate negotiators to seek a deficit-reduction agreement that could ease or eliminate a new round of automatic federal spending cuts scheduled to begin in January. While the current round of these cuts fell on both domestic programs and the military, the upcoming reductions would hit primarily the Pentagon.
Regardless of the outcome of those negotiations, Reid and McConnell were discussing a plan to provide flexibility for agencies struggling to adjust to reduced funding levels.
Also under discussion, officials said, was a possible tightening in income verification requirements for individuals who qualify for subsidies under the health care law known as Obamacare.
Separately, there was discussion of repealing a fee the health care law levies on companies that provide coverage. The cost is set at $63 per person covered for 2014, and is estimated to fall to about $40 by 2016 before it disappears.
Democrats were resisting a Republican-backed proposal to suspend a medical device tax that was enacted as part of the health care law.
The officials spoke on condition of anonymity, saying they were not authorized to comment on the private discussions.
Treasury Secretary Jack Lew has told Congress the deadline for raising the debt limit is Oct. 17.
He, the president and a wide array of economists, bankers and politicians in both parties - at home and backed by world leaders - have all warned that default could have catastrophic consequences for both the domestic and global economies.
The doubters alternatively say no default will occur or that if it does, it won't be the calamity that others claim.
But after holding center stage for much of the current impasse, there was little doubt that they had been shunted aside as Reid and McConnell worked toward an agreement.
As the Senate opened for business on Monday, Reid said he was "very optimistic we will reach an agreement this week that's reasonable in nature."
Moments later, Republican leader McConnell seconded his assessment.
"We have had an opportunity over the last couple of days to have some very constructive exchanges of views about how to move forward. Those discussions continue, and I share (the) optimism that we're going to get a result that will be acceptable to both sides," he said.
In announcing the lawmakers' meeting with Obama, the White House said the president would repeat a vow he has made consistently in recent weeks: "We will not pay a ransom for Congress reopening the government and raising the debt limit."
The prospect of a default and the possibility of a follow-on recession largely overshadowed the partial government shutdown that has furloughed 350,000 federal workers. Government research labs have been affected, veterans' services curtailed and much of the Occupational Safety and Health Organization shuttered.
With federal parks off-limits to visitors, the impact on tourism prompted several governors to petition Interior Secretary Sally Jewell successfully to permit the states to finance some reopenings.
The shutdown began on Oct. 1, at the beginning of the budget year, after the House adopted a strategy of conditioning broad federal spending legislation to a proposal to starve the three-year-old health care law of funding.
The president and Democrats refused, and the long struggle began, merging quickly with the fast-approaching deadline for a debt limit increase.
In the two weeks since, public opinion polls have charted a steady decline in Republican approval ratings, and an increase in the view that the party's lawmakers are acting out of political motivation.
The shutdown has proved problematic for the GOP in the Virginia governor's race, which is on the ballot this fall. Public opinion polls show the Democrat, Terry McAuliffe, ahead of Republican Ken Cuccinelli, who is caught between tea party supporters on the one side and the public's general unhappiness on the other, magnified by the large presence of federal workers in the state.
Democrats hope for that situation to repeat itself nationwide in a year's time, when control of both houses of Congress will be at stake.
For now, though, the fear of economic harm produced warnings from around the globe that the United States must not permit a default.
Christine Lagarde, the International Monetary Fund's managing director, spoke with concern about the disruption and uncertainty on Sunday, warning of "a risk of tipping, yet again, into recession" after the fitful recovery from 2008.
Associated Press writers Donna Cassata, Andrew Taylor, Alan Fram, Henry C. Jackson, Julie Pace, Jim Kuhnhenn and Ricardo Alonso-Zaldivar contributed to this story.
Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.