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With the clock ticking toward a midnight Friday deadline, Obama met at the White House with Republican House of Representatives Speaker John Boehner, and Senate Majority Leader Harry Reid, a Democrat.

Republicans and Democrats have said negotiators were making progress on a compromise that would fund government operations past Friday's deadline and keep more than 800,000 workers in their jobs.

The two parties remain at odds over about $10 billion in spending cuts, according to a Democratic aide.

The final size of the cuts for the rest of this fiscal year will likely end up closer to the $33 billion Democrats have agreed on than the Republicans' $40 billion target, the aide said.

A government shutdown, the first in 15 years, would ripple through an economy still recovering from the worst recession since the 1930s. Obama urged both parties to compromise and said failure to reach agreement would hurt the economy just as it was gaining momentum.

"Companies don't like uncertainty, and if they start seeing that suddenly we may have a shutdown of our government, that could halt momentum, right when we need to build it up," he said at a town-hall style event in Pennsylvania earlier.

A FAILURE OF LEADERSHIP

Boehner criticized Obama for a failure of leadership in the budget showdown and said the House on Thursday would consider a short-term bill to cut an additional $12 billion in spending and fund the government for another week while negotiations continued.

Obama and many of his fellow Democrats oppose another short-term extension. Some Republicans said it could serve as a legislative vehicle for a final budget deal.

"That's not just bad policy, that's a fantasy," Reid said of the temporary extension. He said it would only put off the tough choices needed to reach a deal on the budget.

The White House painted a bleak picture of the potential impact of a government shutdown, saying it could hurt recovery in the housing market and spark reactions ranging from the closure of national parks to the suspension of the weekend cherry blossom parade in the capital.

A senior administration official told reporters the processing of some tax refunds and audits, as well as small business loans would be halted, and operations of the Federal Housing Administration would be curbed.

"Having the FHA not be able to guarantee loans during this period will have a significant impact if we shut down on the housing market, which is very fragile," the official said.

The investment firm Goldman Sachs estimated a government shutdown lasting more than a week could cost the economy $8 billion in missed federal spending, dragging down growth.

Bringing the top two U.S. stock exchanges together would face "insurmountable antitrust problems," the source said on Wednesday, suggesting NYSE's board could look beyond the premium Nasdaq has offered and reject Nasdaq's bid outright.

The focus on monopolies shows just how tricky it will be for the world's top exchange operators to pull off a rash of planned tie-ups that would revamp capital markets in North America, Europe and Asia. Just this week, Australia moved to block a buyout of its bourse by Singapore Exchange.

Last week, Nasdaq and IntercontinentalExchange (ICE.N) complicated the web of merger plans with a $11.3 billion bid for NYSE Euronext, topping a friendly $10.2 billion offer made by Germany's Deutsche Boerse DBIGn.DE.

A counterbid by NYSE for Nasdaq is "absolutely not under consideration," the source close to the NYSE said, knocking down a media report earlier this week that the exchange operator was considering such an unusual and aggressive move.

A spokesman for the New York Stock Exchange parent company backed that up, saying on Wednesday: "NYSE is not considering a counterbid for Nasdaq." He did not comment on how NYSE views Nasdaq's unsolicited bid.

Meanwhile, Deutsche Boerse has no plans to raise its bid for NYSE Euronext, a separate source familiar with the talks said on Wednesday.

All eyes will be on the NYSE board, which is set to meet within a week to decide whether Nasdaq's bid is superior to the one made by Deutsche Boerse in February.

Nasdaq's plan, if it could be completed, would lead to massive job losses in New York City and destroy value for NYSE Euronext shareholders, said the first source.

The sources requested anonymity because the talks are not public.

INSURMOUNTABLE?

Combining Nasdaq and the NYSE would bring the top two U.S. stock exchanges together with a virtual monopoly on listings, and dominance in trading U.S. cash equities and options. Deutsche Boerse's plan would create the world's top financial exchange reliant on the more profitable derivatives trading.

NYSE's board will review Nasdaq's unsolicited offer based on its value and any risks that it will not ultimately close, including the threat regulators would block it.

"'Insurmountable' is probably an overstatement. But there is substantial antitrust risk," said Jonathan Grossman, an antitrust lawyer at Cozen O'Connor in Washington, D.C.

"If the price difference doesn't justify the risk of the U.S. antitrust regulators objecting to the transaction, then it may very well be a rational decision on their part to reject the Nasdaq/ICE offer," he said of the board members.

With time running short, Republican and Democratic negotiators struggled to find a compromise to avert a federal government shutdown that could throw hundreds of thousands of employees out of work.

A Democratic aide said the two sides were moving closer but still needed to hammer out the size and composition of the spending cuts for the final six months of this fiscal year.

Both parties blamed each other for the political showdown, which will set the stage for more budget battles ahead and promises to echo through the 2012 election campaign.

Senate Democratic leader Harry Reid said the budget talks were "constantly evolving" and accused Republicans of changing the terms of the debate ahead of the midnight Friday deadline.

"Every time we agree to meet in the middle they move where the middle is," Reid said as the Senate opened on Wednesday. "We stand here with fewer than 72 hours on the clock ... It's time to get the job done."

Negotiators had tentatively agreed on a figure of $33 billion earlier this week, but House of Representatives Speaker John Boehner, a Republican, is now pushing for a target of $40 billion.

The two sides also must resolve which programs would go under the knife to satisfy Republican demands for sharp spending cuts in the current fiscal year.

POSSIBLE WHITE HOUSE MEETING

The White House said President Barack Obama could meet with lawmakers again on Wednesday. But aides for Boehner and Reid said there was no meeting with Obama scheduled yet.

White House negotiators are still willing to discuss a final figure on spending cuts but say if Republicans insist on reducing abortion funding and halting the Environmental Protection Agency's greenhouse gas rules a government shutdown is much more likely, Democratic sources familiar with the budget talks said.

A Republican insistence on the inclusion of such hot button budget "riders" poses the greatest threat of a government shutdown, the Democratic sources said.

The budget showdown is the biggest political test for both parties since Republicans swept to power in the House and made big Senate gains in last year's elections on promises to slash government spending and reduce the federal government.

Boehner is under pressure to push for deeper cuts from fiscal conservatives aligned with the Tea Party movement who oppose any compromise. Democrats said the Tea Party was the driving force in the showdown.

"He can either do what the Tea Party wants or what the country needs," Reid said of Boehner. "Republicans have demanded a budget that can pass with only Republican votes."

Dish, led by satellite billionaire Charlie Ergen, trumped at least three other bidders, including activist investor Carl Icahn, for the one-time leader in video rentals.

Dish might find Blockbuster's online content appealing as the company could use it as a base for an online product to deliver movies.

The deal marks the second purchase of a bankrupt company by Dish. Last month, Dish got a nod from a bankruptcy court to buy hybrid satellite and land-based communications company DBSD North America for about $1.4 billion.

Ergen struck his first deal of the year in February when digital set-top box maker EchoStar Corp, where he is the chairman, agreed to buy Hughes Communications, one of the world's largest providers of broadband satellite services, for $1.33 billion.

Dish Network said in a statement early on Wednesday it expects to pay about $228 million in cash to acquire Blockbuster.

"Blockbuster will complement our existing video offerings while presenting cross-marketing and service extension opportunities for Dish Network," said Tom Cullen, executive vice president of sales, marketing and programing for Dish Network.

Blockbuster had a market cap of more than $5 billion at its peak in 2002, but came under pressure from mail-order and digital competitors such as Netflix Inc. The company filed for bankruptcy in September and put itself up for sale in February after a reorganization plan fell apart.

The winning bid must still be approved at a hearing in federal bankruptcy court on Thursday.

A $308.1 million bid from Cobalt Video, a group of hedge funds headed by Monarch Alternative Capital LP, was the highest bid before the auction was moved to an attorney's office not open to the press.

Icahn had bid $310.6 million, but his bid included less money than Monarch's for notes rolled up into a bankruptcy loan and was thus considered a lower bid.

(Reporting by Sakthi Prasad and Supantha Mukherjee in Bangalore; Editing by Sriraj Kalluvila)

* Futures for the Dow Jones, S&P 500 and Nasdaq were up 0.2-0.4 percent at 0843 GMT on Wednesday.

* The FTSEurofirst 300 .FTEU3 index of leading European shares was down 0.3 percent at 1,141.05 points with French utilities EDF (EDF.PA) and GDF Suez GDF.PA down 3.7 percent and 1 percent respectively, extending declines from the previous session, after the government imposed pricing restrictions.

* Gold prices rallied to record highs on Wednesday against a backdrop of a weaker dollar and ongoing investor worries over inflation and unrest in the Arab world, while silver touched fresh 31-year peaks.

* The euro rose to a 14-month high against the dollar, ahead of an expected interest rate rise by the European Central Bank. Traders also cited buying by Asian central banks.

* With time running short, U.S. President Barack Obama failed on Tuesday to break a deadlock in budget talks between his Democrats and Republicans that threatens a partial shutdown of the U.S. government.

* On Tuesday, the Standard & Poor's 500 Index .SPX, Dow Jones industrial average .DJI and Nasdaq Composite Index .IXIC ended little changed. The S&P 500 failed to break a key technical resistance level for a second day as low trading volume raised further questions about the market's strength.

* Divisions at the U.S. Federal Reserve over how soon to reverse course on monetary policy emerged more clearly last month, although the central bank appeared intent to complete a $600 billion bond-buying plan. A few officials at the Fed's March 15 policy-setting meeting thought a stronger economy could warrant tightening monetary conditions this year.

(Reporting by Brian Gorman; Editing by Dan Lalor)