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With time running out, Republican and Democratic lawmakers split into opposite camps and held talks among themselves. There were no signs of a deal emerging to head off a default in nine days that could trigger global economic calamity and downgrade America's Triple-A credit rating.

Lawmakers missed a self-imposed deadline of producing a deficit-reduction deal by the time Asian markets opened on Sunday, but planned to outline a proposal Monday. A deficit deal is needed to permit a vote to increase the $14.3 trillion U.S. debt ceiling by August 2.

President Barack Obama heard details of a Senate Democratic plan that would rely on spending cuts, not new tax revenue, which would violate one of his key demands.

Edgy markets responded to the stalemate, but not in dramatic fashion.

Although some had predicted global markets would fall apart without a deal before the Asian markets opened Sunday evening, the reaction was relatively modest as investors pulled out of riskier investments like stocks and headed for safe haven assets like gold, pushing the metal to a new record.

U.S. stock futures fell, signaling a poor open for U.S. markets and showing that investors were increasingly worried about the failure of legislators to coalesce around one approach. Early currency trading suggested a move away from the U.S. dollar, with the biggest drop in the greenback coming against the Swiss franc.

"The fact that they seem to be jumping from one type of proposal to another and not converging on anything is beginning to worry markets," said Steven Englander, head of G10 FX strategy at Citigroup.

"I also think damage is being done by setting deadlines that aren't going to be met," he said.

The battle is over how deeply to cut government spending on social programs and whether to increase taxes, reflecting the challenges of divided government in an age when Republicans and Democrats are beholden to their right and left bases of support.

Democrats want to ease the pain of spending cuts by increasing taxes on the wealthy, a prospect Republicans oppose.

"This is a like a long labor, with the dad in the waiting room, waiting to see if it's a boy or a girl and the doctor's coming out and saying 'I can't tell you yet,'" Republican Representative Jack Kingston told Reuters.

(Additional reporting by Caren Bohan, Dave Clarke, Donna Smith, Andy Sullivan, Laura MacInnis and Alister Bull; writing by Steve Holland; editing by Sandra Maler and Vicki Allen)

Wall Street is set to close its worst three months in a year as July draws to a close this week after a roller-coaster ride for markets. Stressed out fund managers hitting the beach in August may find themselves fiddling with their BlackBerrys more than the little umbrella in their cocktails.

"I need a vacation, man. After all the stuff that's happened in the last three months I'm pretty much shot, I'm getting weird, even my 6-year-old looks at me," said one New Jersey-based fund manager, who was packing his bags for a destination in the Caribbean as temperatures topped 100 degrees Fahrenheit in New York City.

With euro zone leaders having reached a deal for yet another bailout for debt-laden Greece, investors will be free to chew over the rancor in Washington with even more attention.

Negotiations between President Barack Obama and the top Republican in the House of Representatives, John Boehner, still looked far from a deal to avert a looming U.S. default, lawmakers said on Friday, raising the likelihood of more volatility in the coming week if the weekend ends with no solution.

"It's likely an agreement in any form will cause a relief rally for equities," said Glenn Starkman, global head of sales trading at Dahlman Rose in New York.

"Coming on the heels of overall pretty good earnings numbers and some sort of resolution in Greece and that could make for a rally in the market," he said.

But on the other side of the coin, the prolonged and partisan dispute over solving the country's debt crisis means there is still a big downside risk.

"Who knows where that is going to go," said Nick Kalivas, an analyst at MF Global in Chicago. "We're vulnerable to a buyers' strike if we don't get any news."

In addition, the corporate earnings season suggests other risks could dog the market. Despite generally good results so far, there have been some worrisome signs. The S&P 500 rallied 6 percent in the run-up to reporting season, but earnings misses from big industrial names like Rockwell Collins and Caterpillar Inc weighed on the Dow and S&P 500 on Friday.

Earlier in the week several big consumer names such as Whirlpool and Pepsi warned about sluggishness in developed markets, sending their shares sharply lower.

"The market still has a high degree of skepticism in it," Kalivas said, summing up the earnings season so far.

Kalivas said he will be closely following earnings from sector and economic bellwethers this week. Those include the package delivery company UPS, chipmaker Texas Instruments, and online retailer Amazon.

Around 30 percent of the S&P 500's $12.3 trillion market cap have reported earnings so far. They have outpaced consensus estimates by 3.8 percent, and only 7 percent have missed estimates, according to data from Morgan Stanley.

But share prices of those that have fallen short of estimates have taken a severe beating. Given the fragile sentiment a few more prominent misses could derail the market.

"The market is punishing these misses more than it is rewarding beats, an asymmetry we have been calling for and we forecast will continue," Morgan Stanley's U.S. equity strategist Adam Parker wrote in a note to clients.

"Our view remains that first half of the year numbers are achievable, but the second half of the year looks challenged," he said.

This week is also a big week for economic data. Fears of a slowdown in the economy have been a large driver of market volatility over the last few months, and the coming releases will be parsed very closely.

They include early regional manufacturing data from Chicago and New York, a reading of consumer sentiment, and a first reading of U.S. growth for the second quarter, expected to show the economy grew just 1.9 percent in the period.

Bob Doll, chief equity strategist at BlackRock, one of the world's largest fund managers with around $1.6 trillion of equities under management, said last week that the U.S. economy is at a critical juncture.

Doll points out that since 1960 every time year-on-year growth has fallen under 2 percent the U.S. economy has gone into recession.

"Our bottom line view is that investors should maintain a reasonably constructive bias toward risk assets, but should also be prepared to scale back exposure if evidence of economic growth acceleration does not materialize," said Doll.

(Additional reporting by Chuck Mikolajczak; Editing by Leslie Adler and Maureen Bavdek)

Treasury Secretary Timothy Geithner said it was unthinkable that the country would default on its obligations and he was confident a deal would get done.

"What the leaders know is that they need to agree on something together that will pass the House (of Representatives), pass the Senate that the president can accept," Geithner told CNN's "State of the Union" program.

But the path forward was murky.

With Asian markets set to open in a few hours, Democrats and Republicans traded blame for the inability to strike a deal to lift the $14.3 trillion limit on U.S. borrowing ahead of an August 2 deadline. Republican leaders want to show progress by 4 p.m. EDT on Sunday, before trading gets underway in Asia, and have legislation to unveil on Monday.

Financial markets are growing more edgy and U.S. banks and businesses are making contingency plans for the possibility of a debt default that would drive up interest rates, sink the dollar and ripple through economies around the world.

Global investors are still reeling from the euro zone crisis that was contained only a few days ago with the unveiling of a fresh rescue package for Greece.

Republican House of Representatives Speaker John Boehner told "Fox News Sunday" he would unveil a bipartisan deal to raise the debt ceiling.

"The preferable path would be a bipartisan plan that involves all the leaders, but it is too early to decide whether that's possible," Boehner said. "If that's not possible, I and my Republican colleagues in the House are prepared to move on our own."

The United States will run out of funds to service its debt on August 2 if Congress does not approve additional borrowing. Republicans have insisted the White House agree to deep spending cuts for long-term deficit reduction before they approve any increase in America's debt burden.

Negotiations have whipsawed for weeks, finally hitting a brick wall over taxes, one of the most ideologically divisive issues in U.S. politics.

'THEIR WAY OR THE HIGHWAY'

White House chief of staff Bill Daley accused House Republicans of intransigence, telling CBS' "Face the Nation" they were insisting that any deal has to be "their way or the highway."

Administration officials also said President Barack Obama would not accept a two-tiered proposal offered by Boehner that would lift the debt ceiling through the end of 2011 and then require another vote.

Daley said it was critical Congress approve a new debt ceiling that gets the country into 2013, past the November 2012 presidential election.

On Fox, Boehner said raising the debt ceiling and implementing major reforms would have to be done in two stages. "There is going to be a two-stage process. It is not physically possible to do all of this in one step."

Administration officials said a far-reaching "grand bargain" that would combine a debt-limit increase with a 10-year plan to reduce the deficit by $4 trillion was still a possibility, despite Boehner's decision on Friday to walk away from talks with the White House on such a plan.

Boehner said his last offer to the White House on the larger deal was still on the table. That offer included some $800 billion in new tax revenue and massive spending cuts.

To pass any deal that includes more tax revenue, Boehner must overcome staunch resistance from Tea Party movement conservatives in his own party, who adamantly oppose any steps to raise taxes, fiercely defending tax cuts for the rich enacted during the administration of George W. Bush.

Rating agencies say they will cut America's Triple-A credit rating if the United States fails to meet debt payments, likely triggering global market turmoil. Even if the United States does not default, its rating will be under pressure if Congress and the president fail to tackle long-term deficit reduction.

Macroeconomic Advisers, a consultancy, said a failure to lift the debt ceiling and a month-long delay in agreeing on a modest deficit-reduction plan could push the unemployment rate to 9.6 percent by the end of the year, up from 9.2 percent in June.

"It seems the height of policy folly for elected officials, intent on a game of budgetary chicken, to chance this downside risk during an economic recovery that was sub-par to begin with and lately seems to have faltered further," Macroeconomic Advisers said in a blog on Friday. "Sometimes in a game of chicken, people get injured -- seriously."

(Additional reporting by Dave Clarke, Donna Smith, Richard Cowan, Andy Sullivan, Laura MacInnis and Alister Bull; Editing by Will Dunham and Todd Eastham)