President Barack Obama and congressional leaders struggled on Sunday to break a partisan deadlock on a budget deal to avoid a U.S. debt default and reassure global markets, with no sign of a deal emerging.

White House Chief of Staff Bill Daley warned that there would be a few stressful days ahead for financial markets, with the deadline to lift the $14.3 trillion (8.75 trillion pound) U.S. borrowing limit now only nine days away.

Daley, appearing on the CBS television program Face the Nation, quickly added: In the end there's no question in my mind the government of America will not default.

The initial reaction as Asian financial markets opened was mild with the euro gaining against the dollar in early trading. The dollar fell to a four-month low against the Japanese yen.

President Barack Obama set an early evening meeting with the two top Democrats in Congress, Senate Majority Leader Harry Reid and House of Representatives minority leader Nancy Pelosi, to take stock of any movement in Sunday negotiations.

House of Representatives Speaker John Boehner gave fellow Republicans a progress report on his efforts to forge a plan but there was no sign Republicans had settled on a deal.

The battle is over now deeply to cut government spending on social programs and whether to increase taxes. Democrats want to ease the pain of spending cuts by increasing taxes on the wealthy, a prospect Republicans oppose.

Boehner told the Republicans that a key obstacle is that Obama wants a $2.4 trillion debt limit increase all at once to last through the 2012 election, without any guarantees that we're going to cut more than $2.4 trillion in spending.

He said he believed both parties agree that significant spending cuts are needed and urged unity among Republicans.

It's gonna require some of you to make some sacrifices. If we stand together as a team, our leverage is maximized, and they have to deal with us. If we're divided, our leverage gets minimized, he said, according to a source familiar with the conference call Boehner conducted.

Democrats and Republicans traded blame for the inability to strike an agreement. The two sides are deadlocked over Republicans demands for a short-term debt-limit increase that would force President Barack Obama to request further borrowing authority in early 2012.

Obama and congressional Democrats insist on a longer-term extension of the borrowing limit that would carry the country through the presidential election in November 2012.

We're kind of at an impasse, a Senate Democratic aide told reporters.

Financial markets are growing more worried about the possibility of a debt default that could drive up interest rates, sink the dollar and send shockwaves through economies around the world.

(Additional reporting by Steve Holland, Dave Clarke, Donna Smith, Richard Cowan, Andy Sullivan, Laura MacInnis and Alister Bull; editing by Sandra Maler)

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