A last-gasp deal to raise the US borrowing limit cleared its biggest hurdle in Congress on Monday, warding off the risk of a debt default after weeks of partisan feuding that damaged America's image abroad.   

A day before the deadline to lift the debt ceiling, the Republican-controlled House of Representatives passed on a 269-161 vote the $2.1 trillion deficit-cutting plan hammered out over the weekend by congressional leaders with President Barack Obama.   

The Democratic-controlled Senate was expected to approve the bill at noon (1600 GMT) on Tuesday. It would then go to the desk of Obama, who has said he is anxious to sign it into law.

House approval had been considered the biggest obstacle to a solution to the debt limit crisis and there was suspense right up until the end of the 15-minute vote, as many lawmakers waited until the final minutes to cast a 'yea' or a 'nay.'    

While 174 Republicans voted for the measure, 66 opposed it, requiring Democratic support for it to pass. Democratic House members were evenly split -- 95 for, 95 against -- as many objected angrily to spending cuts without tax hikes.   

House Speaker John Boehner, the top Republican in Congress, said the end result justified the often torturous months of negotiations.

"The process works. It may not be pretty, but it works," he said. The bill raises the borrowing limit into 2013, calls for spending cuts spread over 10 years and creates a congressional committee to recommend a deficit-reduction package by late November. It contains no immediate tax increases.   

The passage signaled the end was in sight to a months-long acrimonious partisan battle that had deadlocked the political system of the United States, alarming its international allies and shaking financial markets. Feuding could flare again when the deal must be implemented.   

There was additional drama when Representative Gabrielle Giffords, an Arizona Democrat badly injured in a January shooting, made a surprise appearance on the House floor to vote for the bill, drawing applause. She blew kisses and waved.   

Up to the last minute, financial markets worldwide had been rattled by uncertainty over whether the compromise plan could pass the House in the face of objections from conservative Tea Party Republicans and liberal Democrats.   

Having a deal in place by Tuesday to raise the government's $14.3 trillion borrowing limit removes the risk of Washington not being able to borrow money to pay all of its bills.

Concern now switched to whether the deal and the hard-fought compromises that forged it would be enough to keep influential credit ratings agencies from the unprecedented step of downgrading the top-notch U.S. credit rating. There was little immediate reaction in financial markets.   

But earlier, the US dollar fell against the Swiss franc to a record low as investors flocked to assets considered safe, worried about a bleak outlook for the world economy and a possible cut to the United States' triple-A credit rating.

Such a move could push up borrowing costs just as the US economy is still struggling to recover from recession.
   
Mohamed El-Erian, co-chief investment officer of Pimco, which runs the world's largest bond fund, said attention would now focus on a possible US downgrade "and all the detrimental effects of weeks of political squabbles on household and corporate confidence, economic governance, growth, employment, inequality and America's standing in the global economy."  - Reuters