Obama says fiscal cliff agreement 'within sight'

US president Barack Obama says an agreement to avoid the so-called fiscal cliff is "within sight, but it's not done".

American politicians are spending the final hours of 2012 trying to strike a deal to avoid a series of spending cuts and tax rises due to descend on the economy on New Year's Day.

A special Sunday session of the Senate adjourned without agreement to avoid the huge austerity package, known as the fiscal cliff, which takes effect at 4pm Tuesday (AEDT).

This morning Mr Obama said there were still issues to be resolved, but was hopeful Congress would get it done.

He said a "grand bargain" between Democrats and Republicans was too much to hope for, but the problem may solved in steps.

The president said reaching a deal to prevent tax increases was his top priority.

"Today it appears that an agreement to prevent this New Year's tax hike is within sight.

But it's not done.

There are still issues to resolve but we're hopeful that Congress can get it done," he said.

US lawmakers are working on New Year's Eve for the first time in more than 40 years.

"There is still time left to reach an agreement, and we intend to continue negotiations," Democrat majority leader Harry Reid said earlier.

However, he told the Senate "there is still significant distance between the two sides", after huddling for nearly two hours with his caucus.

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