American President Barack Obama has this morning signed a bill which will increase the nation's debt ceiling to avert the country defaulting on payments.
The move saw US stocks wipe out most of their gains for 2011, plunging after poor economic data overshadowed the congressional deal.
Prior to signing the bill, Obama said the bill a first step toward ensuring the United States lives within its means but that more was needed to rebuild the world's largest economy.
Speaking at the White House, Obama made clear he expects tax reform to emerge from deliberations by a new committee of Democrats and Republicans to be established by the legislation and a "balanced approach" in which the wealthier pay more taxes is needed for more deficit reduction.
Responsibility must be shared
Earlier the bill, which will lift the government's US$14.3 trillion debt ceiling enough to last beyond the next year's elections, was passed by the Senate 74 to 26.
Obama, a Democrat, said uncertainty from the bitter debt debate had been an impediment to business but the economic recovery also suffered from unforeseen problems such as the Japan earthquake and tsunami.
Obama urged Congress to pass stalled trade bills and said he wants tax cuts for the middle class and unemployment benefits extended.
"Both parties share power in Washington. And both parties need to take responsibility for improving this economy.
"I'll be discussing additional ideas in the weeks ahead to help companies hire, invest and expand."
Obama chided US political leaders for taking so long to resolve the impasse over the debt ceiling, bringing the country close to an unprecedented default.
"We have seen in the past few days that Washington has the ability to focus when there is a timer ticking down and when there is a looming disaster," he said. "It shouldn't take the risk of default, the risk of economic catastrophe, to get folks in this town to work together and do their jobs."
Obama also urged the Senate to break an impasse that has resulted in a partial shutdown of federal aviation programs.
"There is another stalemate in Congress right now involving our aviation industry which has stalled airport construction projects all around the country and put the jobs of tens of thousands of construction workers and others at risk because of politics," he said.
"It's another Washington-inflicted wound on America and Congress needs to break that impasse now, hopefully before the Senate adjourns, so these folks can get back to work."
US stocks fell after the bill was signed, with a sell-off erasing all of the year's gains.
The Standard Poor's 500 lost 2.6 percent as investors grew increasingly concerned about the economy. The benchmark index is now at its lowest point of the year.
A report that consumers cut their spending in June for the first time in two years added to a series of weak economic indicators have pushed stocks lower for seven straight days.
The SP is closing down 33 points to 1,254. The Dow Jones industrial average is down 266, or 2.2 percent, to 11,867. The Nasdaq is down 75, or 2.8 percent, to 2,669.
Four stocks fell for every one that rose on the New York Stock Exchange. Volume was higher than average at 5.3 billion shares.
Meanwhile the top US military officer is telling anxious troops that cuts in health care, retirement and benefits for the military are all potential targets for cuts as America struggles to rein in spending.
Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, said while the costs of the wars in Iraq and Afghanistan are going down as US forces withdraw over the next few years, the latest debt agreement will demand defence cuts, and nothing is off the table.
From the Marines battling a fierce insurgency in south-western Afghanistan to soldiers packing up to leave Iraq, troops are quizzing Mullen about rumours that military retirement benefits and health care would be affected by the debt compromise being hammered out in Congress.