President Barack Obama warned on Tuesday that a federal government shutdown would seriously disrupt the U.S. economy, after Republican and Democratic leaders failed to make headway on a budget deal.

With the clock ticking toward a government shutdown on Friday, Obama said he would call negotiators from both parties back to the White House if necessary to break an impasse.

The deadlock over how to fund the federal government for the remainder of the fiscal year, which ends September 30, threatens to throw hundreds of thousands of employees out of work and ripple through an economy still recovering from the worst recession since the 1930s.

Obama said negotiators are now closer than ever to getting an agreement.

The only question is whether politics or ideology are going to get in the way of preventing a government shutdown.

Talks appear to have hit a standstill after negotiators tentatively agreed to slash a record $33 billion from the current fiscal year's spending levels. The two sides remain at odds over which government programs should be targeted.

We're going to continue to fight for the largest cuts possible, said House of Representatives Speaker John Boehner, the top Republican in Congress, maintaining his hard-line negotiating stance in the showdown with the White House.

Boehner is facing his first big test since Republicans won control of the House last year on a campaign promise to cut spending and scale back the reach of the federal government. He is under pressure from fiscal conservatives aligned with the Tea Party movement who oppose any compromise.

Boehner's deputy, House Republican Leader Eric Cantor, said it is not a likelihood that a deal could be reached by midnight Friday, when current funding is set to expire.

Senate Majority Leader Harry Reid, a Democrat, said, I am not optimistic. No, I'm not. I think the Tea Party is driving what goes on in the House of Representatives and we cannot do what they want done.

Republicans have floated a new proposal 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.

Despite Cantor's warning, analysts said a shutdown still appears unlikely as neither side would benefit from inaction that shutters everything from passport offices to bankruptcy courts.

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, Donna Smith and Richard Cowan; Editing by Doina Chiacu)

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