Democrats and Republicans say signs of progress are emerging in urgent negotiations to avert the looming US fiscal cliff ahead of a midnight deadline.

A source said Democrats have offered to extend tax cuts for families making up to 450,000 dollars a year and individuals earning up to 400,000 dollars. President Barack Obama originally wanted the tax cuts to be extended only for families on up to 250,000 dollars a year.

Unless an agreement is reached and approved by Congress by the start of New Year's Day, more than 500 billion dollars in 2013 tax increases will begin to take effect and 109 billion dollars will be carved from defence and domestic programmes.

Meanwhile, the country's chronic deficit spending continues without a deal to address it.

"This whole thing is a national embarrassment," senator Bob Corker, a Republican, said on MSNBC, adding that any solution Congress would come to at this late stage would be inconsequential.

World markets were fairly calm, perhaps on hopes that the tax hikes and spending cuts largely could be held at bay for a few weeks and then repealed retroactively if a deal is reached.

If there's no deal, the effects could be harsh. The nation would lose up to 3.4 million jobs, the Congressional Budget Office has predicted.

And if the limit is not raised on how much the government can borrow, the government's reaching the current 16.4 trillion dollar ceiling in February or March could lead to a first-ever default that would shake worldwide confidence in the United States.

On top of that, the current Congress is in session only until noon on January 3. After that, a newly elected Congress with 13 new senators and 82 new House members would inherit the problem.