The White House and congressional lawmakers have reached a deal to avoid the "fiscal cliff" that would delay harsh spending cuts by two months, an Obama administration source said.

Democratic Senate Majority Leader Harry Reid and House of Representatives Minority Leader Nancy Pelosi have also reportedly signed off on the agreement, which would extend Bush-era tax cuts for family incomes below $450,000.

Yet the US was still technically on track to fall over the "fiscal cliff" at midnight on Monday.

Lawmakers were working feverishly into the night to hammer out a deal that would raise tax rates on the wealthy but preserve tax breaks for the middle class and maintain some key stimulus benefits like unemployment insurance.

The agreement includes a balance of spending cuts and revenue increases to pay for the delay in the automatic spending cuts that would go into effect without a deal.

Of those spending cuts, 50 percent would come from defense and 50 percent from non-defense areas, the sources said.

The White House viewed that as a victory, one Reuters source said, and sees it as a model for future deficit reduction pacts.

Al Jazeera's John Terrett, reporting from Washington, said, "We'll be back here in two months' time dealing with the issue of sequester, budget cuts and the debt ceiling."

Our correspondent added, "Yet the vote sends a signal around the world that, when push comes to shove, there is finally an agreement - even if it's New Year's Eve."

Issues left to resolve

Earlier, the US president had said a deal on the "fiscal cliff" was within sight, but that it was not completed yet.

Speaking to an audience of middle-class taxpayers at the White House, Obama on Monday said the deal would extend unemployment benefits for Americans "who are still out there looking for a job".

"There are still issues left to resolve, but we're hopeful that Congress can get it done. But it's not done," Obama said.

About $600bn in tax increases and government-wide spending cuts were set to begin taking effect after midnight - harsh measures that could push the US economy into recession.

But lawmakers can still vote for any deal on New Year's Day and prevent the worst of the fiscal cliff effect.

Under the Senate plan, those with a household income above $450,000 or individual income above $400,000 would be taxed at 39.6 percent, up from 35 percent.

Republicans, who control the House of Representatives, have been against raising taxes on the rich, while the Democrat-controlled Senate and the White House have been averse to spending cuts.

Meanwhile, the country's chronic deficit spending - about $1tn a year - continues without a deal to address it.

Without a deal, the nation could lose up to 3.4 million jobs, the Congressional Budget Office has predicted. And budget cuts of up to 9 percent could hit most of the federal government.

And if the limit were not raised on how much the government can borrow, reaching the $16.4tn debt ceiling could lead to a first-ever default in February or March that would shake worldwide confidence in the United States.

On top of that, the current Congress is in session only through mid-day on January 3. After that, a freshly elected Congress with 13 new senators and 82 new House members will inherit the problem.

The uncertainty has weighed on financial markets and forced businesses to slow hiring and investment.

PHOTO CAPTION

President Barack Obama delivers remarks at the White House in Washington November 28, 2012.

Aljazeera