WASHINGTON (AP) — In a blunt challenge to President Barack Obama, House Republicans drafted legislation Monday to avert a threatened Aug. 2 government default — but along lines the White House has already dismissed. U.S. financial markets shrugged off the uncertainty.

"Compromise has become a dirty word," Obama lamented as congressional leaders groped for a way out of a looming crisis.

According to a GOP aide familiar with the emerging House bill, it would provide for an immediate $1 trillion increase in the government's $14.3 trillion debt limit in exchange for $1.2 trillion in cuts in federal spending.

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The measure also envisions Congress approving a second round of spending cuts of $1.8 trillion or more in 2012, passage of which would trigger an additional $1.6 trillion in increased borrowing authority.

While the bill marked a retreat from legislation that conservatives muscled through the House last week, the two-step approach runs afoul of Obama's insistence that lawmakers solve the current crisis in a way that avoids a politically charged rerun next year in the middle of the 2012 election campaign.

Without signed legislation by day's end on Aug. 2, the Treasury will be unable to pay all its bills, possibly triggering an unprecedented default that officials warn could harm an economy struggling to recover from the worst recession in decades.

That deadline has set off an epic clash between the two parties, each side maneuvering for public approval and political leverage in advance of next year's elections with the White House and control of Congress at stake.

As House Speaker John Boehner readied his legislation, Senate Democratic leaders called a news conference to announce their own next steps.

Senate Majority Leader Harry Reid, D-Nev., has been working on a fallback bill that officials said would cut $2.7 trillion in federal spending and raise the debt limit by $2.4 trillion in one step — enough borrowing authority to meet Obama's bottom-line demand.

In the process, though, another of the president's long-held conditions appeared to be in danger of rejection.

Neither Boehner's measure nor the one Reid was drafting included additional revenue, according to officials in both parties.

In remarks during the day, the president renewed his call for a balanced approach to cutting deficits that includes both spending cuts and higher revenue.

The wealthy and big corporations have to "pay their fair share, too," he said.

In addition to a two-step approach to raising the debt limit, the House measure would require lawmakers in both houses to vote later this year on a constitutional amendment requiring a balanced federal budget.

An earlier bill, passed in the House last week but then scuttled in the Senate, would have required Congress to approve an amendment and send it to the states for ratification.

That same bill would have made $6 trillion in spending cuts in exchange for raising the debt limit.

Obama promised to veto that bill even before the House voted on it.

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