WRAPUP 15-Obama, Congress make budget deal, avert shutdown

* Budget negotiators faced midnight deadline

* Spending, birth control restrictions at issue

* Foreign investors worried about action on debt, deficit
(Adds quotes and details)

By Richard Cowan and Matt Spetalnick

WASHINGTON, April 8 (Reuters) – U.S. President Barack Obama
and congressional leaders struck a last-minute budget deal on
Friday, narrowly averting a government shutdown that would have
idled hundreds of thousands of federal workers.

With little time to spare before a midnight deadline for a
government closure, Obama’s Democrats and opposition
Republicans agreed to a bitterly fought compromise plan that
would cut $37.8 billion in spending for the rest of the fiscal
year.

Congress moved quickly to approve a seven-day stopgap
funding measure to keep federal agencies running into next week
until the budget agreement can be formally enacted.

A shutdown — the first in more than 15 years — would have
meant furloughs for much of the federal work force, suspension
of key government services and the closing of many national
parks and monuments, while potentially undermining the U.S.
economic recovery.

But the biggest incentive for a deal may have been the
risks that failure would have posed for Obama, his fellow
Democrats and the Republicans amid signs of public frustration
with the rancorous budget fight in Washington as the 2012
presidential election campaign gathers steam.

“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.

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

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The deal for the rest of the fiscal year, which came after
days of tense negotiations and brinkmanship, will yield the
largest domestic spending cuts in U.S. history, an achievement
for Republicans who won control of the House of Representatives
last November on a promise to scale back government.

But Obama and the Democrats can take solace in having 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.

Despite the resolution, the political fight raised
questions about the ability of Obama and a divided U.S.
Congress to deal with bigger issues looming down the road, from
raising the federal debt ceiling to reining in budget
deficits.

Investment firm Goldman Sachs (GS.N: Quote, Profile, Research) had estimated a
government shutdown lasting more than a week could have cost
the economy $8 billion in missed federal spending, dragging
down growth.

COMPROMISE

“Like any worthwhile compromise, 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.”

U.S. House of Representatives Speaker John Boehner told
reporters the sides had come to “an agreement that will in fact
cut spending and keep our government open.”

Obama’s aides and U.S. lawmakers had struggled for days to
hammer out a deal. Without an agreement, money to operate the
federal government for the next six months would have run out
at midnight on Friday and agencies such as the Internal Revenue
Service would begin a partial shutdown.

The leadership of the world’s lone remaining superpower has
been consumed for days by the budgetary infighting that could
bring large swathes of government to a standstill.

“They’ve got to be laughing at us right now” in China, said
Senate Foreign Relations Committee Chairman John Kerry. “How
terrific that the United States of America can’t make a
decision.”

White House Budget Director Jack Lew said Obama was
expected to sign the stopgap measure no later than Saturday and
told federal agencies to continue their normal operations.

AT ODDS

Democratic and Republican leaders had traded blame for the
budget impasse throughout the final day of negotiations.

Senate Democratic Majority Leader Harry Reid said the final
issue was a Republican push to give states greater discretion
over federal funds earmarked for birth control and women’s
health clinics. Democrats say that would give Republican
governors license to block those funds.

But Boehner said the final stumbling block was spending
cuts that Republicans say were needed to rein in budget
deficits hitting $1.4 trillion a year.

Fear that a government shutdown could hurt economic growth
on the margins pressured the dollar and U.S. Treasury prices on
Friday. Longer-term, investors are looking at the last
shutdown, in 1995, when predictions of spending cuts made
government debt and the dollar more appealing and both rose.

Citigroup (C.N: Quote, Profile, Research) noted the budget debate is raising concern
among foreign investors about how the U.S. government will deal
with the budget deficit, federal debt and the budget talks for
the 2012 fiscal year, which begins Oct. 1.

The showdown is the biggest test of leadership for Obama
since Republicans — propelled by Tea Party conservatives —
made big gains and took control of the House last November.

A government shutdown on Obama’s watch could have been a
negative for him as he seeks re-election. But Boehner was under
pressure to stand firm in the talks from Tea Party members who
refuse to give ground on spending cuts.

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, Andy Sullivan,
Patricia Zengerle, Kim Dixon, Donna Smith, Andrea Shalal-Esa,
Jeff Mason and Thomas Ferraro; editing by Will Dunham and
Deborah Charles)

WRAPUP 15-Obama, Congress make budget deal, avert shutdown