Compromise

"Like any worthwhile compromise, both sides had to make tough decisions and give ground on issues that were important to them," Obama said. "Some of the cuts we agreed to will be painful."

US House of Representatives Speaker John Boehner told reporters the sides had come to "an agreement that will in fact cut spending and keep our government open."

Obama's aides and US lawmakers had struggled for days to hammer out a deal. Without an agreement, money to operate the federal government for the next six months would have run out at midnight on Friday and agencies such as the Internal Revenue Service would begin a partial shutdown.

The leadership of the world's lone remaining superpower has been consumed for days by the budgetary infighting that could bring large swathes of government to a standstill.

White House Budget Director Jack Lew said Obama was expected to sign the stopgap measure no later than Saturday and told federal agencies to continue their normal operations.

At Odds

Democratic and Republican leaders had traded blame for the budget impasse throughout the final day of negotiations.

Senate Democratic Majority Leader Harry Reid said the final issue was a Republican push to give states greater discretion over federal funds earmarked for birth control and women's health clinics. Democrats say that would give Republican governors license to block those funds.

But Boehner said the final stumbling block was spending cuts that Republicans say were needed to rein in budget deficits hitting $1.4 trillion a year.

Fear that a government shutdown could hurt economic growth on the margins pressured the dollar and US Treasury prices on Friday. Longer-term, investors are looking at the last shutdown, in 1995, when predictions of spending cuts made government debt and the dollar more appealing and both rose.

Citigroup noted the budget debate is raising concern among foreign investors about how the US government will deal with the budget deficit, federal debt and the budget talks for the 2012 fiscal year, which begins October 1.

The showdown is the biggest test of leadership for Obama since Republicans, propelled by Tea Party conservatives, made big gains and took control of the House last November.

A government shutdown on Obama's watch could have been a negative for him as he seeks re-election. But Boehner was under pressure to stand firm in the talks from Tea Party members who refuse to give ground on spending cuts.

The budget battle has dominated Obama's agenda even as he struggles to balance Americans' chief concerns, jobs and the economy, with foreign policy challenges topped by Middle East turmoil and US military involvement in the Libyan conflict.