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Group of influential senators make a proposal that might win the support of both President Obama and the Republicans A last-ditch plan to resolve the deadlock over America’s debt ceiling has raised hopes that the world’s biggest economy could avoid a potentially catastrophic default, as Europe remains bogged down in its own financial crisis. Financial markets rallied on Wednesday after a group of senators dubbed the “Gang of Six” unveiled a proposal that might win the support of both President Obama and the Republican opposition. Asian and European stock markets posted gains, the oil price rose, gold lost ground, and the dollar fell against the euro – all signs that investors were less fearful about the future. The Gang of Six’s plan attempts to stake out the middle ground between the two opposing sides. It includes deficit cuts of almost $4 trillion (£2.48tn) over the decade, including reductions in spending on health programmes – but may appease Democrat concerns by guaranteeing some essential services. It also calls for $1tn of increased tax revenue, but balances this with income tax rate cuts that could find favour with Republicans. Obama called the proposal a “very significant step”, and urged the three Democrats and three Republican senators to develop it. “My hope … is that they tomorrow are prepared to start talking turkey and getting down to the hard business of crafting a plan,” Obama told reporters on Tuesday. America has less than two weeks to agree a plan to raise its debt ceiling from the current maximum level of $14.3tn, which was reached in May . The US Treasury predicts that the country will run out of resources to pay its bills on 2 August, but some experts believe a deal must be reached by this Friday to allow time for legislation to be written, debated and approved. City traders were also encouraged by signs of progress in the US debt ceiling talks, but warned that investors remained wary. “The consensus has always been that political posturing would see this go to the wire before an acceptable resolution was found, but it has presented an uncomfortable scenario to holders of treasuries and arguably won’t stand to do the US any favours in the longer term,” said Ben Potter, market strategist at IG Markets. “That aside, the Dow added 202 points yesterday and gold is in retreat, two clear signs that some confidence is seeping back in to equity markets now,” Potter added. In London, the FTSE index rose by 36 points in early trading to 5826. The price of a barrel of US crude gained $1 to $98.47, while gold remained below the $1,600 mark reached on Monday. Europe’s leaders continue to struggle to agree a way forward ahead of Thursday’s crunch meeting in Brussels. Angela Merkel, the German chancellor, will meet French president Nicolas Sarkozy in Berlin on Wednesday to prepare for the meeting of eurozone heads of state and government. On Tuesday night Merkel spoke with Obama by telephone, both agreeing that it was vital to find a way forward. However, it is still not clear how a second bailout of Greece will be funded. Merkel’s warning that the situation will not be resolved with a single “spectacular event” alarmed analysts, who fear that further indecision could trigger another stage of the crisis. Spain and Italy remained under pressure in the international markets. The yields, or interest rates, on their 10-year bonds were trading at 6.06% and 5.69% respectively, slightly lower overnight but still indicating that traders view their bonds as risky . Economics US economy Republicans United States US politics Obama administration Graeme Wearden guardian.co.uk