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

"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.   

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."

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.   

Senator Charles Schumer, a Democrat, told CNN: "Default is far less of a possibility now than it was even a day ago because the leaders are talking, and talking in a constructive way."

Politicians were scrambling for a deal to avoid the possibility of market shock on Monday, before Tuesday's deadline when the United States loses its borrowing authority.

"We have to get this solved. Today is obviously a critical day. We have to give confidence that there is a pathway" to reduce the deficit, Plouffe said.

A US default would 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.

Japan, the second largest holder of US debt, was increasingly alarmed that the United States would miss the deadline, sources familiar with Japan's fiscal affairs said. - Reuters