US lawmakers were closing in on a last-gasp US$3 trillion deal late yesterday to raise the US borrowing limit and assure financial markets that the United States will avoid a potentially catastrophic default.

An agreement would end weeks of political gridlock that brought the world’s largest economy teetering on the brink of an unprecedented default and close to losing its triple-A credit rating.

“We’re very close,” said Senate Minority Leader Mitch McConnell, the top Senate Republican who is playing a key role in the debt ceiling negotiations.

Time was running out for the US government to raise its $14.3 trillion borrowing limit before the Tuesday deadline when the Treasury says it will run out of money to pay its bills and could no longer service the national debt. But a cautious optimism had begun emerging on Capitol Hill.

White House senior adviser David Plouffe said there was general agreement on a deal that would cut the US deficit in two stages. It was first time the White House had acknowledged that both sides were close to a deal.

The first $1 trillion in cuts have been largely agreed on by lawmakers. Under the emerging deal described by congressional aides, a further $1.8 trillion would be recommended by a special committee appointed by Congress and automatic measures would implement the planned cuts if Congress failed to vote on them.

“It is clear that in the first stage we’re going to get ... an extension of the debt ceiling, a first set of spending cuts over $1 trillion, and then you’re going to get this committee that will be charged with reporting out hopefully a balanced deficit reduction,” Plouffe told NBC’s Meet the Press.

A US default would likely plunge financial markets and economies around the globe into turmoil. US stock markets last week posted their worst losses in a year, the dollar slumped and nervous investors put cash into insured bank accounts. World leaders have been stunned by the dysfunction in Washington that has led the United States to the brink of default. World Bank President Robert Zoellick on Friday said the United States was playing with fire.

America’s largest foreign creditor, China, has repeatedly urged Washington to protect its dollar investments and its state-run news agency on Friday said the United States had been “kidnapped” by “dangerously irresponsible” politics.

Cambodian officials have said they are watching the situation closely.

National Bank of Cambodia Director General and Spokeswoman Nguon Sokha yesterday tempered what she said would be the obvious affects on the Kingdom’s dollarised economy with the worldwide support the US dollar enjoys.

Speaking to The Post before reports surfaced of a possible agreement between the two US factions, she pointed to the benefits of a depreciated dollar for the Cambodian economy.

It would likely boost exports and tourism growth, but could bring about a rise in import costs. She added domestic savings are also often denominated in dollars, which meant consumer spending power would drop if the greenback fell, in turn dragging on the Cambodian economy.

However, she said much of the world used the dollar as its reserve currency, and countries had an interest in ensuring the currency did not decline too quickly.

“I think the international community has an interest in preventing the US dollar from falling abruptly,” she said.

REUTERS/ ADDITIONAL REPORTING TOM BRENNAN