US Republican and Democratic leaders have reached overnight an agreement on raising the US debt limit and avoiding default.

The breaking news was announced by US President Barack Obama, saying the deal would cut USD 1TN of spending over 10 years, and set up a committee to report by November on a proposal to further reduce the deficit.

"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, a default that would have had a devastating effect on our economy," Obama stated, adding it was not the deal he would have preferred, but noted that the compromise plan would make a "serious downpayment" on the US deficit.

According to the President, the process of agreeing on a plan had been messy and had taken "far too long", and he called on parties to support the plan in votes in Congress.

The Congress still has to approve the deal. Both houses are expected to vote Monday, ahead of the Tuesday deadline to raise the USD 14.3 TN debt limit.

The US limits by law the total amount of debt its government can run up in order to pay its bills, and the Obama administration has been under mounting financial pressure.

After the announcement, shares in Tokyo rose 1.7%. Hong Kong shares were set to open 1.3% higher.

Republican House leader John Boehner, quoted by BBC, said he hoped to hold Congressional votes on the plan "as soon as possible".

"This isn't the greatest deal in the world. But it shows how much we've changed the terms of the debate in this town," he pointed out.

According to Boehner, those savings would amount to at least USD 1.5 TN, bringing the total spending cuts under the plan to about USD 2.5 TN - higher than the proposed rise in the debt limit, which an administration official said would amount to USD 2.1 TN.

In the last few days, Republicans, who control the House of Representatives, and Democrats, who control the Senate, have rejected plans drawn up by the rival party in an unprecedented political battle.

Obama opposed the Republican plan because it would only have raised the debt limit by enough to last until mid-2012, meaning Washington would have had to readdress the issue during next year's presidential campaign.