Republicans and Democrats failed to reach agreement on Tuesday during White House talks aimed at forging a budget deal that would keep the U.S. government operating beyond Friday.

House of Representatives Speaker John Boehner, facing his first big test as leader, told President Barack Obama Republicans would not be put in a box and forced to accept a deal that failed to make deep spending cuts.

He said Americans are concerned about how much we're spending and how we're spending it, Boehner's office said after a nearly hour long meeting between Obama and congressional leaders.

The two parties traded accusations as they jockeyed for the high moral ground while the White House directed government agencies to prepare for a shutdown that could throw hundreds of thousands out of work and ripple through an economy still recovering from the worst recession since 1930s.

With only four days to cement a deal, party leaders have yet to resolve major differences in a budget plan that would slice a record $33 billion from current spending levels.

Republicans have floated a new plan that would keep the government running for another week as negotiations continue, but it would impose another $12 billion in cuts. Democrats have called that unacceptable.

Analysts said a shutdown still appeared less than likely at this point, as neither side benefits if inaction shutters everything from passport offices to bankruptcy courts.

Our odds remain above 50 percent that the government will not shut down on Saturday, though it is close to a jump ball, wrote MF Global analyst Chris Krueger in a research note.

Markets had a different view.

Prediction market Intrade, which allows people to bet on the outcome of events, showed investors put a 55 percent chance on the government shutting down by June 30 after Boehner's office said no deal had been reached at the White House talks.

Shutdown talk by lawmakers could merely be posturing -- an exercise in brinkmanship to force the other side to blink -- or it could be a sign that a deal still remains out of reach.

Amid the fight, Republicans on Tuesday laid the groundwork for wider budget battles, proposing an overhaul of government-run health programs, dramatic tax cuts and sharp spending caps in a budget plan for the next fiscal year, which starts October 1.

(Additional reporting by Jeff Mason, Emily Kaiser and Richard Cowan; Editing by Doina Chiacu)

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