London, Dec 29 : US President Barack Obama has said that he is `modestly optimistic' that a deal will be reached next week to prevent a blitz of tax rises and spending cuts hitting the American economy.

The guarded optimism came after Wall Street closed sharply lower on fears Congress will fail to prevent the American economy falling over the fiscal cliff, the shorthand for 600 billion dollars of tax rises and spending cuts that take effect from January 1.

After a meeting with Democratic and Republican leaders, Obama said `the hour for immediate action has come, and that Americans will not have any patience for a self-inflicted wound on the economy.

According to the Telegraph, investors across the world are have tracked the tortuous negotiations in Washington as politicians fight over how to cut America''s 16.4 trillion dollars of debt without choking off a recovery in the world''s largest economy.

Should all the tax increases and roughly 100 billion dollars of spending cuts be allowed to happen, most economists fear the US will plunge back into recession in the first quarter of 2013, the paper said.

The cautious confidence from Obama was echoed by Mitch McConnell, the leader of the Republicans in the Senate, and Harry Reid, who heads the majority Democratic faction, the paper said. (ANI)