Media playback is unsupported on your device Media caption Barack Obama: "There is still a lot of work to do"

President Barack Obama says Republican and Democratic leaders have struck a deal to raise the US debt limit.

Under the proposal, which is set for debate and votes in Congress on Monday, the US debt ceiling would rise by up to $2.4tn from the current $14.3tn.

The US government deficit will be cut by a similar amount over 10 years, and a special bipartisan committee will also be set up to agree spending cuts.

Without a deal the US would face the prospect of defaulting on its debts.

Party leaders in the House of Representatives and Senate still have to present the deal to their members on Monday, before the package goes to a vote.

The BBC's Jane O'Brien says the package is still likely to be a tough sell, with some Republicans and Democrats in the House remaining opposed to different aspects.

A number of conservative Republicans, including first-time congressmen, are likely to vote against the plan, while some liberals in the Democratic party will be disappointed by the prospect of cuts to benefits.

But Democratic House leader Nancy Pelosi is expected to ensure enough Democrats vote for the bill to help smooth its passage, analysts say.

Shares up

The US faces a Tuesday deadline to raise its $14.3tn (£8.7tn) debt limit or risk the first full-scale default in its history, a possibility that has spread mounting unease through international markets.

Speaking on Sunday night, the US president said it was not the deal he would have preferred, but noted that the compromise plan would make a "serious downpayment" on the US deficit.

Analysis The president says it's not the perfect deal. But he and the leaders of both parties now believe they have the framework for something they can put to their party rank and file. It's still likely to be a tough sell. The Republican Tea Party members are unlikely to support it because the cuts don't go far enough, and many Democrats will be furious that it doesn't include tax hikes. Both sides will hold further discussions on Monday before the agreement is drafted into legislation that can be put to a vote. America's credit rating may still be downgraded, but it now looks more likely that the world's most powerful economy will be spared the humiliation of not being able to pay its bills on Tuesday.

"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," Mr Obama said.

Democrats and Republicans in Washington have been deadlocked over finding a way to cut spending and raise the debt limit as the Tuesday deadline approached.

The US limits by law the total amount of debt its government can issue, and the Obama administration has been under mounting pressure over how it would continue to pay bills and costs like salaries if the limit was reached.

News of the proposed deal was welcomed by financial markets, with shares in Tokyo, London and Paris all gaining more than 1%.

"We welcome the US debt deal and hopefully this will stabilise markets," Japan's Chief Cabinet Secretary Yukio Edano said.

'Not the greatest deal'

Republican House leader John Boehner 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 said.

The proposed deal calls for:

•At least $2.4tn deficit reduction over 10 years

•New Congressional committee to recommend a deficit-reduction proposal by November

Image caption The focus now shifts back to Congress with votes expected on Monday

•A two-stage increase in the debt ceiling.

The recommendations of the new, bipartisan committee tasked with identifying further savings would also be put to a vote in Congress, Mr Obama said.

According to Mr Boehner, those savings would amount to at least $1.5tn, bringing the total spending cuts under the plan to about $2.4tn.

In recent days, Republicans, who control the House of Representatives, and Democrats, who control the Senate, have rejected plans drawn up by the rival party in a mounting political battle.