The White House and Congressional Republicans are said to have reached a deal at the eleventh hour to avert the so-called fiscal cliff, according to a Democratic aide.
It means that automatic tax rises and spending cuts, which economists thought could plunge the US back in to recession, have been briefly averted.
Senior Congressional aides say the pact would raise taxes on the richest Americans - those earning over $450,000 a year - but exempt everyone else, and will put off $109bn in budget cuts across the government for two months.
Vice President Joe Biden, who negotiated the deal with Republican Senate Majority leader Mitch McConnell, was on Capitol Hill to sell it to Democratic senators, a White House source added.
The tax hikes and spending cuts were due to come into force at midnight. But as global markets, sure to be rocked by a failure to head off the fiscal cliff, are closed for New Year's day, lawmakers have time to vote the deal into law.
A Senate vote was expected overnight on Monday while the House of Representatives was expected to follow suit today after a display of dramatic New Year's Eve brinkmanship.
Mr Obama had originally campaigned for tax hikes to kick in for those making $250,000 and above and his acceptance of a higher threshold has already angered liberals, though still represents a political victory.
The president said it would extend tax credits for clean energy firms and also unemployment insurance for two million people due to expire later Monday.
It was also expected to include an end to a temporary 2% cut to payroll taxes for social security retirement savings and Medicare health care programmes for seniors and changes to inheritance and investment taxes.
Signs that a deal could be close cheered investors as US markets rose before closing for the year. The Dow Jones Industrial Average closed up 166.03 points (1.28%) at 13,104.14.
Both sides were on Monday already gearing up for the next legislative showdown over the need to lift the government's statutory borrowing limit of $16.4trn, which was reached on Monday.
The Treasury will now take extraordinary measures to keep the government afloat for an undisclosed period of time until the ceiling is raised. Republicans are already demanding spending cuts in return.
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