WASHINGTON (MarketWatch) — President Barack Obama and Senate leaders announced Sunday night that they have reached agreement on a “framework” debt deal that will cut spending and increase the federal debt ceiling.

In brief statements only minutes apart this evening, Obama, Senate Democratic leader Harry Reid and Senate Republican leader Mitch McConnell said the agreement would lift the cloud of possible default that has hovered over global financial markets.

“There are still some very important votes to be taken by Congress, but I want to announce the leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default,” Obama said.

Obama urged all members of Congress to support the deal while admitting it was not in the shape he preferred.

House Speaker John Boehner also informed House Republicans that he backed the budget deal and used a conference call with members to urge that they support it.

The deal must be approved by midnight Tuesday or the U.S. will breach its debt ceiling, leaving the Treasury with a dwindling supply of cash to pay its bills.

Experts have estimated that the department has enough cash on hand to pay all its bills for another week but after that would have to prioritize payments, raising the prospect that U.S. debt would be downgraded by ratings agencies.

Federal Reserve officials said a downgrading of U.S. debt would have unpredictable and serious consequences for the economy and financial markets.

Asian stock markets rallied after the budget deal was announced. Read more on Asia market reaction. U.S. stock futures also moved solidly higher. Read more on U.S. stock futures reaction.

Deal details

Under the framework deal, a $1 trillion increase in the debt-ceiling would be coupled with an immediate $1 trillion cut in discretionary spending.

Obama said these cuts would not happen so abruptly that they would be a drag on the economy.

A further increase in the debt ceiling that would last past 2012 would await the outcome of a special bipartisan Congressional committee tasked with coming up with additional deficit reduction before Thanksgiving that would be put before Congress for a vote.

If the second debt-reduction package is not passed, the deal would establish an automatic trigger of cuts to programs both Democrats and Republicans hold sacred.

Obama said tax revenues should be considered by the super-committee.

Obama said the process was “messy” and the budget talks had taken too long.

“But this compromise does make a serious down-payment on the deficit reduction we need, and gives each party a strong incentive to get a balanced plan done before the end of the year,” Obama said.

Analysts said the deal should clear the Senate but would have a tougher time in the House.

House Democratic Leader Nancy Pelosi said her caucus may not support the budget deal, which would put more pressure on Boehner to find votes among his conservative members.

The progressive wing of the House Democrats has already sharply criticized the triggers in the debt-ceiling plan.

“These triggers create a red line for us,” Rep. Keith Ellison, a Democrat from Minnesota, the co-chair of the Congressional Progressive Caucus, said in an interview on MSNBC.

Reid and McConnell said they would meet with their respective caucuses on Monday morning and a vote in the Senate would then occur.

If passed by the Senate, the measure would then move to the House.

“We are not done yet,” Obama said.