Shortly before 2am on Tuesday the US Senate passed the measure by an overwhelming vote of 89 to 8. It still needs to be passed by the House of Representatives which was due to reconvene at noon local time on Tuesday (4am Wednesday AEDT).

Americans earning more than $400,000 ($450,000 for couples) would foot much of the bill, with taxes on their wages and interest and investments increasing to 39.6 per cent, a level not seen since Bill Clinton was president. The tax rises would be permanent.

The measure marks a victory for Barack Obama, who campaigned to increase taxes on America's wealthiest throughout his presidential re-election bid. The White House's apparent victory did not win the full support of all Senate Democrats.

"I just think that's grossly unfair," said Democratic Senator Tom Harkin, a liberal leader, early in a tense day of negotiations. "If we're going to have some kind of a deal, the deal must be one that really favours the middle class, the real middle class."

In Canberra, the Treasurer, Wayne Swan, greeted news of the 11th-hour debt deal with only lukewarm praise, warning that a divided Washington needed to reach a more comprehensive agreement before the rest of the world would see the threat as having passed.

"While it is welcome to see progress towards a deal in the US, more will need to be done to achieve the enduring deal the world needs," he said. "As the IMF have said, anything short of a deep and wide reaching resolution will not be good enough this time around.

"We will continue to closely monitor these developments because they have a significant impact on the entire global economy, including Australia and our region."

Australian Treasury officials reportedly believe that an even greater risk to the global economy than the fiscal cliff is the danger that Washington will once again get bogged down in an impasse over the nation's debt ceiling.

In mid-2011, the US government came within hours of a catastrophic default after weeks of brinkmanship during which Congress refused to raise the legal limit on government borrowing. The crisis was averted at the last moment but it set the stage for the fiscal cliff standoff.

US Treasury officials said on Monday the government was again brushing the debt ceiling, which raises fears of a rerun of the previous impasse.

News of the deal, brokered by the vice president, Joe Biden, and the Republican Senate minority leader, Mitch McConnell, started leaking about 9.30pm Monday in Washington, and though Congress has had 18 months to tackle the fiscal cliff, the last-minute plan prompted celebration among some Democrats.

As negotiations continued through the day members on both sides of the aisle lamented and fretted.

In the end it appeared senators believed a failure to act at all would be worse than a failure to compromise. "No deal is the worse deal," said Senator Joseph Lieberman, the independent from Connecticut.

The Democratic House minority leader, Nancy Pelosi, said in a statement: "When a final agreement is reached and passed by the Senate, I will present it to the House Democratic caucus."

"It's a controversial package. But we knew that it was going to be a difficult challenge," said the Senate majority whip, Richard Durbin. "We have to pass it for the good of the country."

About 11.30pm Mr Biden emerged from talks with the Democratic leadership with his customary good cheer and told reporters he felt "really very very good" about how a vote in the Senate would go. Then he reminded everyone that Senate votes were unpredictable, and House votes even worse.

Hours earlier the President said during a briefing: "Just last month Republicans in Congress said they would never agree to raise tax rates on the wealthiest Americans . . . obviously, the agreement that's currently being discussed would raise those rates and raise them permanently."

Though a Senate deal was reached early on Tuesdsay, the US had already passed over the fiscal cliff, and there was no guarantee the House of Representatives would pass the measures during the public holiday on January 1, to ensure no immediate impacts were felt. Nor does the agreement deal with America's underlying problem with debt and deficit.

By the time Mr Biden emerged from the meeting the broad outlines of the Senate deal had already leaked.

Under the last-minute deal – which covers only a few key elements of the automatic tax increases and spending cuts that have become known as the fiscal cliff – the Senate agreed to ensure 2 million Americans receiving federal unemployment benefits would have them extended.

Savage cuts to the defence budget – opposed by members of both parties – would be delayed for two months.

with David Wroe