WRAPUP 1-Late U.S. budget deal avoids costly shutdown

* Deal brings $38 billion in spending cuts

* A shutdown would have hit economy, angered voters

* Bigger budget fights ahead

By Andy Sullivan and Jeff Mason

WASHINGTON, April 9 (Reuters) – U.S. President Barack Obama
and congressional leaders struck a last-minute budget deal on
Friday to narrowly avert a government shutdown that would have
hit the economy and idled hundreds of thousands of workers.

With a little over an hour to spare before a midnight
deadline, Obama’s Democrats and opposition Republicans agreed
to a bitterly fought compromise plan that will cut about $38
billion in spending for the rest of the fiscal year.

Congress then quickly approved a stopgap funding measure to
keep the federal government running into next week until the
budget agreement can be formally approved.

A shutdown — the first in more than 15 years — would have
weakened the U.S. economic recovery, forced furloughs for some
800,000 federal employees, closed national parks and monuments
and even delayed paychecks for troops in Afghanistan and Iraq.

But the biggest incentive for a deal may have been the
risks that failure would have posed for Obama, his Democrats
and the Republicans just as the 2012 presidential election
campaign gathers steam.

Public frustration over the budget fight had surged as
Democrats and Republicans traded blame and a shutdown loomed.

“Tomorrow, I’m pleased to announce that the Washington
Monument as well as the entire federal government will be open
for business,” Obama said in a late-night appearance at the
White House shortly after the agreement was reached.

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Full budget coverage [ID:nUSBUDGET]

Shutdown battle only a start of budget war [ID:nN08130288]

Reuters live blog on budget http://link.reuters.com/muw88r

Reuters Insider http://link.reuters.com/bys88r

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It provides the largest spending cuts in U.S. history, a
victory for Republicans who won control of the House of
Representatives in November on promises to scale back
government.

House of Representatives Speaker John Boehner, who came
under intense pressure from Tea Party conservatives inside his
own Republican Party to take an even tougher stance, said the
deal clears the way for bigger spending cuts in coming years.

But Obama and the Democrats were able to beat back a
Republican effort to block birth control funding to the Planned
Parenthood family planning organization, because it also
provides abortions — though not with public money.

“Both sides had to make tough decisions and give ground on
issues that were important to them,” Obama said. “Some of the
cuts we agreed to will be painful.”

DIVIDED CONGRESS

Still, the fight did little to improve the view Americans
have of their political leaders, and raised concerns about the
ability of Obama and a divided Congress to deal with bigger
issues, from raising the federal debt ceiling to reining in
budget deficits.

Even some lawmakers said the bitter feuding had sent a bad
message to the rest of the world.

“They’ve got to be laughing at us right now” in China, said
Senate Foreign Relations Committee Chairman John Kerry.

Fears that a government shutdown would hurt economic growth
had pressured the dollar and U.S. Treasury prices on Friday.

All sides agreed the debate had been long and painful.

“It has been a grueling process. We didn’t do it at this
late hour for drama. We did it because it has been very hard to
arrive at this point,” said Senate Majority Leader Harry Reid,
a Democrat.

After the deal was finally reached, White House Budget
Director Jack Lew told federal agencies to continue their
normal operations.

But there will almost certainly be a much bigger showdown
over the budget for the next fiscal year, which begins on Oct.
1.

Republicans are already pledging to slash taxes and
overhaul Medicaid and Medicare, government-run health programs
for the poor and elderly. The Democratic-controlled Senate is
likely to flatly reject those plans.

A government shutdown could have been a negative for Obama
as he seeks re-election. But there were significant risks for
Republican leaders, too, especially if they were seen as being
under the thumb of Tea Party radicals.

The budget battle has dominated Obama’s agenda even as he
struggles to balance Americans’ chief concerns — jobs and the
economy — with foreign policy challenges topped by Middle East
turmoil and U.S. military involvement in the Libyan conflict.
(Additional reporting by Alister Bull, Patricia Zengerle,
Richard Cowan, Matt Spetalnick, Kim Dixon, Donna Smith, Andrea
Shalal-Esa and Thomas Ferraro; Editing by Kieran Murray)

WRAPUP 1-Late U.S. budget deal avoids costly shutdown