US President Barack Obama has called on leaders from both parties to meet in order to reach a decision that will avoid the so-called 'sequestration' from going into effect.

The deadline to avoid an automatic round of spending cuts worth $85bn passes on Friday after Obama's proposal for €110bn in progressive cuts was rejected by the Senate the day before with 51 votes to 49.

Hopes for a deal to be reached have dissipated after months of negotiations in which Republicans and Democrats have been unable to reach an agreement.

"I'm happy to discuss other ideas to keep our commitment to reducing Washington spending at today's meeting," said Republican Mitch McConnell. "But there will be no last-minute, back-room deal and absolutely no agreement to increase taxes."

Deutsche Bank's chief US economist Joseph LaVorgna said the sequester could take 40 basis points off gross domestic product in 2013, "possibly higher, depending on whether the fiscal multiplier is positive".

"However, we believe there is a good chance that sometime over the next few weeks, the Administration and Congress will water down these spending cuts," LaVorgna added.

"This will be the compromise necessary to extend the continuing resolution which funds the government, but expires on March 27th."

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