US congressional negotiators have reached a deal on $789 billion in emergency spending and tax cuts, handing a big victory to President Barack Obama in his effort to pull the economy out of a steep tailspin.

Negotiators in the House of Representatives and Senate overcame an apparent last-minute snag on funding to help states plug growing budget deficits and money for school construction that Obama had sought.

The huge package is aimed at reversing a deep recession and news of the agreement sent US stock markets higher. The negotiators approved the compromise, setting up votes in the House on Thursday and likely soon after in the Senate.

Obama, whose early hopes for strong bipartisan support for the strategy were crushed by reluctant Republicans, said the deal would help save or create millions of jobs and 'get our economy back on track.'

The compromise stimulus package is 'a plan that will provide immediate tax relief to families and businesses, while investing in priorities like health care, education, energy, and infrastructure that will grow our economy once more,' he said in a statement.

Without a stimulus bill, Obama has said the country faces a possible economic 'catastrophe.'

With some 3.6 million jobs shed since the recession began in December 2007, heavy equipment maker Caterpillar would be able to to rehire some of its 20,000 laid-off workers if the stimulus package passed, Obama said.

About 36 percent of the package is geared toward tax cuts, with the rest in spending, according to a Senate aide.

The huge emergency spending will add to a federal budget deficit already spinning out of control. The Treasury Department said on Wednesday a $569 billion deficit was recorded just for the first four months of the fiscal year that began last October 1, a record for that period.

Democrats control both chambers in Congress and fellow Democrat Obama has pushed them for a quick conclusion to the legislation in hopes it would begin to create and save up to 4 million jobs.

His stimulus plan has won little support from Republicans who argued it was merely expanding big government spending, underlining the scale of his task after he won election in November pledging to reach across party lines from the White House.

In the Senate, passage of the bill depended on support from a handful of moderate Republicans. To address their concerns, negotiators in the House and Senate agreed to scale back earlier proposals for the package.

'The middle ground we've reached creates more jobs than the original Senate bill and spends less than the original House bill,' Senate Majority Leader Harry Reid told reporters. Senators said it would create or save 3.5 million jobs.

Negotiators had worked around the clock to meld an $820 billion House bill with an $838 billion Senate measure, trying to meet a deadline set by Obama to produce a plan that he wants to sign into law by Monday. - Reuters