More barbs, less hope; Stocks sink on default fears.

Byline: David Espo

WASHINGTON -- President Barack Obama and House Speaker John Boehner offered hints of possible compromise, but also traded heated rhetoric Tuesday, a frustratingly inconclusive combination that left the eight-day partial government shutdown firmly in place and the threat of an unprecedented national default drawing closer.

''There's a crack there,'' Boehner said of the impasse near the end of a day of maneuvering at the White House and the Capitol. Yet the Ohio Republican added that it was not enough to warrant optimism.

Stocks fell significantly -- the Dow Jones average by 159 points -- as political gridlock endured. And, in the latest in a string of dire warnings, the International Monetary Fund said failure to raise America's debt limit could lead to default and disrupt worldwide financial markets, raise interest rates and push the U.S economy back into recession.

Republicans ''don't get to demand ransom in exchange for doing their jobs,'' Obama said at the White House. ''They don't also get to say, you know, unless you give me what the voters rejected in the last election, I'm going to cause a recession.''

Even the deaths of U.S. servicemen over the weekend in Afghanistan were grist for the politicians. The Pentagon said that because of the partial shutdown, it was unable to pay the customary death benefits to the survivors.

Boehner said Congress had passed and Obama signed legislation last week permitting the payments, adding it was ''disgraceful'' for the administration to interpret the measure otherwise. He said the House would clarify the issue with a new bill Wednesday.

In Congress, a plan by Senate Democrats to raise the debt limit by $1 trillion to stave off a possible default drew little evidence of support from Republicans.

And a proposal by the House Republicans to create a working group of 20 lawmakers to tackle deficit issues drew a veto threat from the White House, the latest in a string of them as the administration insists the GOP reopen the government and avert default before any negotiations on deficit reduction or the three-year-old health care law can take place.

On a day in which both Obama and Boehner appeared on live television, both men appeared to be giving ground yet yielding little if anything of substance.

At midmorning, Boehner and other Republicans seemed to soften their demands.

''I suspect we can work out a mechanism to raise the debt ceiling while a negotiation is underway,'' said Rep...