The US government began a partial shutdown on Tuesday for the first time in 17 years, potentially putting up to 1 million workers on unpaid leave, closing national parks and stalling medical research projects, forcing President Barack Obama to send warnings that the nascent economic recovery will be impacted if the budget does not get passed.
Federal agencies were directed to cut back services after lawmakers could not break a political stalemate that sparked new questions about the ability of a deeply divided Congress to perform its most basic functions.
After House Republicans floated a late offer to break the logjam, Senate Majority Leader Harry Reid rejected the idea, saying Democrats would not enter into formal negotiations on spending "with a gun to our head" in the form of government shutdowns.
After missing the midnight (0400 GMT) deadline to avert the shutdown, Republicans and Democrats in the House continued a bitter blame game, each side shifting responsibility to the other in efforts to redirect a possible public backlash.
If Congress can agree to a new funding bill soon, the shutdown could last days rather than weeks. But no signs emerged of a strategy to bring the parties together.
The political dysfunction at the Capitol also raised fresh concerns about whether Congress can meet a crucial mid-October deadline to raise the government's $16.7 trillion debt ceiling.
With an eye on the 2014 congressional elections, both parties tried to deflect responsibility for the shutdown. President Barack Obama accused Republicans of being too beholden to Tea Party conservatives in the House of Representatives and said the shutdown could threaten the economic recovery.
The political stakes are particularly high for Republicans, who are trying to regain control of the Senate next year. Polls show they are more likely to be blamed for the shutdown, as they were during the last shutdown in 1996.
"On US shutdown, somebody is going to win and somebody is going to lose," said pollster Peter Brown of the Quinnipiac University poll. "Going in, Barack Obama and the Democrats have a little edge."
The dollar held steady on Tuesday even though much of the US government was due to start shutting down. S&P stock futures inched up 0.2 percent, unchanged from earlier price action after the cash index fell 0.6 percent on Monday, while US Treasury futures slipped 5 ticks.
Most Asian markets were trading higher on Tuesday.
The shutdown, the