President Barack Obama and Republican congressional leaders reached an 11th-hour deal on Sunday night to avert the first government default in U.S. history.

The agreement would raise the government's $14.3-trillion debt ceiling, allowing vital borrowing by the Treasury Department in exchange for more than $2 trillion in long-term spending cuts, if approved by 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 Sunday from the White House briefing room in Washington.

"A default," he added, "that would have had a devastating effect on our economy."

Under the debt-relief package, about $1 trillion in long-term spending would be cut over the next decade. Another $1.5 trillion in cuts would be imposed gradually, but no initial cuts will be made to Social Security and Medicare.

"The result would be the lowest level of annual domestic spending since Dwight Eisenhower was president" in the 1950s, Obama said.

"Is this the deal I would have preferred? No. I believe that we could have made the tough choices required on entitlement reform and tax reform right now…'—U.S. President  Barack Obama

Officials said Republican House Speaker John Boehner phoned Obama mid-evening to say an agreement, which includes no tax hikes, had been reached.

Boehner said the deal hashed out with Obama and congressional leaders "isn't the greatest deal" but lives up to the GOP's principles on taxes and spending, and comes before the opening of Asian financial markets on Monday morning.

No votes were expected in either house of Congress until Monday at the earliest to give rank-and-file lawmakers time to review the framework for the budget package. It was clear the U.S. was not quite out of the woods yet, with Democratic House Minority Leader Nancy Pelosi's endorsement of the deal conspicuously absent. 

"I look forward to reviewing the legislation with my caucus to see what level of support we can provide," she said in a written statement Sunday night.

Without additional borrowing authority by Tuesday, the U.S. was at risk of defaulting on its debts, leaving the government unable to pay all of its bills or send out cheques for social assistance and pensions.

The CBC's Chris Brown, monitoring the brinksmanship in the U.S. capital, said Obama's evening television address to the nation capped a day of frantic backroom dealings.

"The president says that the leadership of both the Democrats and Republicans in the Senate and House of Representatives have endorsed this deal, and will urge their members to vote for it and effectively end what had become an extremely messy, toxic affair," he reported.

It will be up to a special congressional committee to identify exactly what spending cuts will be made.

Obama reiterated that the compromise was necessary from both sides to avoid a default crisis on Tuesday.

"Now, is this the deal I would have preferred?" Obama said. "No. I believe that we could have made the tough choices required on entitlement reform and tax reform right now, rather than through a special congressional committee process."

Spending cuts would equal debt-ceiling increase

But the president said he was hopeful the tentative deficit-reduction deal would give incentive to both parties to hammer out a balanced plan before the end of 2012.

The deal can be perceived as offering concessions to both sides.

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Senate Minority Leader Mitch McConnell, a Republican, gives a thumbs up when asked about a deal on the debt ceiling as he heads to the Senate floor on Capitol Hill in Washington on Sunday. (Susan Walsh/Associated Press)

Republicans and their Tea Party supporters would get spending cuts at least as large as the amount the debt ceiling would grow and avoid any tax increases.

For Obama and Democrats, there would be no renewed battle over extending the borrowing limit until after next year's elections.

Obama and Democrats had been insisting on a one-shot debt ceiling increase of around $2.4 trillion —enough to last until 2013. Bowing to GOP pressure, they eventually agreed to include an equal amount of spending cuts and dropped their earlier bid for tax increases, but Obama vowed to veto any bill that did not include the increase beyond the next election.

'Sigh of relief' in global markets

The impact has already been felt on a still-struggling U.S. economy, James Marple, a senior economist with TD Bank, told CBC News on Sunday. Even so, he expected world markets to rebound following the news.

"There is a lot of relief," Marple said. "We'll see, I think, when markets open, there will be a huge sigh of relief, and probably a bit of a rally and a strengthening in the U.S. dollar, which has fallen against a whole range of currencies, including the Canadian dollar."

Japan's benchmark Nikkei index was the first major stock market to open for trading at 8 p.m. ET on Sunday. After Obama's televised statement, the Nikkei was up 1.7 per cent.

South Korea's Kospi gained 1.6 per cent to 2,168.05, while Australia's benchmark stock index gained 2.1 per cent to 4,515.1, and New Zealand rose 0.5 per cent. China's Shanghai composite index dropped 0.4 per cent.

There's also evidence that investors believe the deal Obama announced is likely to pass in Congress.

After the deal was announced, Dow futures were up 182 points, or 1.5 per cent. Future contracts for the broader S&P 500 index rose 1.6 per cent. When futures are up during off-hours trading, stocks typically rise when the market opens.

With files from The Associated Press