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Photo: The Canadian Press. All rights reserved.

President Barack Obama gestures as he speaks about the fiscal cliff, Monday, Dec. 31, 2012, in the South Court Auditorium at the White House in Washington. The president said it appears that an agreement to avoid the fiscal cliff is "in sight," but says it's not yet complete and work continues. (AP Photo/Charles Dharapak)

Agonizingly close to a New Year's Eve compromise, the White House and congressional Republicans agreed Monday to block across-the-board tax increases set for midnight, but held up a final deal as they haggled away the final hours of 2012 in a dispute over spending cuts.

"It appears that an agreement to prevent this New Year's tax hike is within sight," President Barack Obama said in an early-afternoon status report on negotiations. "But it's not done."

Senate Republican Leader Mitch McConnell, shepherding final talks with Vice-President Joe Biden, agreed with Obama that an overall deal was near. In remarks on the Senate floor, he suggested Congress move quickly to pass tax legislation and "continue to work on finding smarter ways to cut spending" next year.

The White House and Democrats initially declined the offer, but several officials said they could reconsider.

While the deadline to prevent tax increases and spending cuts was technically midnight, passage of legislation by the time a new Congress takes office at noon on Jan. 3, 2013, the likely timetable, would eliminate or minimize any inconvenience for taxpayers.

For now, more than the embarrassment of a gridlocked Congress working through New Year's Eve in the Capitol was at stake.

Economists in and out of government have warned that a combination of tax hikes and spending cuts could trigger a new recession, and the White House and Congress have spent the seven seeks since the Nov. 6 elections struggling for a compromise to protect the economy.