By Arun Kumar
Washington, Aug 1 (IANS) President Barack Obama and congressional leaders have reached an eleventh hour agreement to raise the $14.3 trillion federal debt limit in two stages by as much as $2.4 trillion to avoid a catastrophic US government default.

The proposed deal reached Sunday night, just two days before the government runs out of cash Aug 2, still requires congressional approval and there is no guarantee the plan will win enough support to pass both chambers of Congress.

"There are still some very important votes to be taken by members of Congress, but 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," Obama said in brief remarks to reporters.

"The ultimate solution to our deficit problem must be balanced," he said. "That's why the second part of this agreement is so important."

Minutes earlier, Democratic Senate Majority Leader Harry Reid and Republican Minority Leader Mitch McConnell also announced the deal on the Senate floor.

CNN citing sources said a first step would include about $1 trillion in spending cuts while raising the debt ceiling about the same amount.

The proposal also would set up a special committee of Democratic and Republican legislators from both chambers of Congress to recommend additional deficit reduction steps, including tax reform as well as reforms to popular entitlement programmes such as Medicare and Social Security.

The Washington Post said the agreement represented "a victory for Obama, in that it would allow him to avoid another politically gruelling and economically damaging debt-limit fight in the heat of the 2012 presidential campaign".

Commenting on the deal, the New York Times said the US may now "escape from the debt limit showdown with its credit rating intact" but the US "government may not be so lucky with its reputation".

"The bitterness, division and dysfunction that resounded around the world in recent weeks" it said "has eroded America's already diminishing aura as the world's economic haven and the sole country with the power to lead the rest of the world out of financial crisis and recession".

"The deal leaves the hardest questions unanswered, setting up months and years of additional debate and fiscal pain," said the Wall Street Journal.