He said the deal would cut US$1tn of spending over 10 years, and set up a committee to report by November on a proposal to further reduce the deficit.

But Congress still has to approve the deal, and no votes are expected until Monday at the earliest.

The parties face a deadline to raise the US$14.3tn (£8.7tn) debt limit on August 1.

"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.

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.