Financial markets would be affected adversely if US lawmakers fail to agree on a “fiscal cliff” deal before Tuesday, President Barack Obama said in an interview broadcast on Sunday, while urging Congress to act quickly to extend tax cuts for middle-class Americans.

Lawmakers are seeking a last-minute deal that would set aside USD 600 billion in tax increases and across-the-board government spending cuts that are set to start within days. If Congress does not make that happen, the first bill brought up in the new year would be to reduce taxes for middle-income families, Obama told NBC’s “Meet the Press.”

“Now I think that over the next 48 hours, my hope is that people recognize that, regardless of partisan differences, our top priority has to be to make sure that taxes on middle-class families do not go up. That would hurt our economy badly,” Obama said in the interview taped on Saturday.

“We can get that done. Democrats and Republicans both say they don’t want taxes to go up on middle-class families. That’s something we all agree on. If we can get that done, that takes a big bite out of the ‘fiscal cliff.’ It avoids the worst outcomes,” Obama added.

Low income tax rates first put in place under Republican former President George W. Bush are due to expire at the end of the day on Monday – the last day of 2012.

Obama said that failing to reach a deal would have a negative impact on financial markets.

“If people start seeing that on January 1st this problem still hasn’t been solved, that we haven’t seen the kind of deficit reduction that we could have had had the Republicans been willing to take the deal that I gave them … then obviously that’s going to have an adverse reaction in the markets,” he said.

RARE SENATE SESSION ON SUNDAY

Obama met with congressional leaders at the White House on Friday and declared himself cautiously optimistic about the chances of an agreement, but he noted in the interview that nothing had materialized since then.

“I was modestly optimistic yesterday, but we don’t yet see an agreement. And now the pressure’s on Congress to produce,” he said.

The Senate is scheduled to hold a rare Sunday session beginning at 1 p.m. EST (1800 GMT), but it was not clear whether the chamber would have fiscal-cliff legislation to act upon.

Obama sketched out what he believed to be the most likely scenarios the end the back-and-forth between both sides. Either the congressional leaders would come up with a deal, or Democrats in the Senate would bring a bill to the floor seeking an up-or-down vote to extend tax cuts for middle income earners.

President Barack Obama is pledging to focus in his second term on immigration reform, boosting economic growth through infrastructure repair and energy policies that nod to environmental protection.

The President is mired in a difficult fight with Congressional Republicans to avoid sharp spending cuts and steep tax-increases collectively referred to as the “fiscal cliff.” However, he still has a longer-term to-do list for his remaining four years in office, he said in an interview on NBC’s “Meet the Press” that was broadcast on Sunday.

Obama, who won re-election in November after a campaign in which he succeeded in painting himself as a strong advocate for the middle class and those aspiring to join it, also promised in the interview to make a run at passing gun control legislation in the first year of his second term.

“Fixing our broken immigration system is a top priority,” he said. He renewed a pledge to introduce legislation in the first year of his second term to get it done.

Immigration reform is a sensitive subject for the president, who failed to fulfill his promise to revamp the system during his first term. Latino voters were a critical part of the coalition that helped get him re-elected, a fact that may soften political opposition from Republicans, who are eager to bolster their support with that demographic group.

Immigration reform supporters on the Left believe that the 11 million undocumented foreigners in the United States should be allowed a path to work toward citizenship. But opponents believe that this approach would reward people who broke the law by coming to the United States illegally.

Republicans have sought stronger measures to keep illegal immigrants from entering the United States from Mexico. Advocates on both sides of the debate want to more effectively verify legal workers in an economy in which businesses want to hire non-US workers ranging from low-paid farm hands to technology-savvy professionals.

While negotiations to avoid the fiscal cliff have hogged the spotlight in the first weeks after the election, Obama said he wants to take steps to ensure the sluggish recovery gains steam.

Many observers had believed a persistently high level of unemployment would thwart Obama’s chances of winning a second term. The US unemployment rate peaked at 10 percent in 2009 after the harshest recession since the Great Depression but has been falling and dipped to 7.7 percent in November.

The pace of activity in China’s vast manufacturing sector hit its fastest rate in December since May 2011, a survey of private factory managers showed, with a sub-index for new orders pointing to continued strength in the new year.

The final reading for the HSBC Purchasing Managers’ Survey rose to 51.5 in December, well above the final reading of 50.5 in November and the preliminary reading of 50.9 published in the middle of the month.

November marked the first time in more than a year that the survey crossed above 50 points, the line that demarcates accelerating from slowing growth.

The survey results fit with a growing consensus that the Chinese economy revved back up in the fourth quarter, after growth slowed for the seventh consecutive quarter to 7.4 percent in the third.

A sub-index tracking new orders showed even more room for optimism, rising to 52.9, its highest level since January 2011.

“Such a momentum is likely to be sustained in the coming months when infrastructure construction runs into full speed and property market conditions stabilise,” Hongbin Qu, HSBC’s chief economist for China, wrote in a note accompanying the survey.

“This, plus Beijing’s reiteration of keeping pro-growth policy in place into the coming year, should support a modest growth recovery of around 8.6 percent year-on-year in 2013, despite the ongoing external headwinds.”

In another sign of strength, a sub-index tracking output rose to its highest level since May 2011.

The improving economic picture seems primarily linked to domestic demand, as China’s export sector continues to grapple with a slowdown in its biggest markets. A new export orders sub-index retreated below 50 in December, after rising into expansionary territory in November for the first time in seven months.

Financial markets across Asia and Western Europe were either closed or closing early on Monday, abandoning the field as the U.S. Congress and the White House battled it out for a solution to the impending “fiscal cliff”.

Market holidays were in force in Japan, South Korea, Taiwan, Indonesia, Thailand, the Philippines and Vietnam, with half-day trading in Australia, New Zealand, Hong Kong and Singapore.

MSCI’s broadest index of Asia-Pacific shares outside Japan was effectively unchanged given the extensive market closures. It has gained about 18 percent this year, a sharp turnaround from an 18 percent plunge in 2011.

In Washington, Senate Majority Leader Harry Reid said the Senate would resume sitting at 11 a.m. Washington time (1600 GMT), to continue discussions, but there were still significant differences between the two sides.

S&P 500 futures were up 5.6 points, or 0.4 percent, to 1,389.40 in electronic trading at 0030 GMT. Dow and Nasdaq futures were also slightly higher on news the parties were still talking.

But traders said the rise in the futures market did not necessarily bode well for a Wall Street rally on Monday after the cash market and futures markets closed far apart on Friday.

“Hard to predict how or when there will be a deal, but I believe investors will show their displeasure tomorrow by selling stocks if there is no deal,” said Mohannad Aama, managing director at Beam Capital Management, an investment advisory firm in New York.

The U.S. dollar was trading around 85.96-97, off its two-year, four-month highs above 86.63-64 yen seen last Friday as investors sold to take profits amid the fiscal cliff uncertainty.

The euro inched up 0.14 percent to 1.323 on Monday. An agreement on the U.S. budget would be viewed as positive for riskier currencies such as the euro and Australian dollar, while a deadlock is deemed positive for the haven and highly liquid dollar.

The Australian dollar was around $1.0365, from $1.0375 in late New York on Friday. It touched a one-month low of $1.0345 last week, but is on track to finish up 1.4 pct this year.

The Aussie dollar was supported by a bounce in iron ore prices, which hit eight-month highs at $139.40. Prices are now up 61 percent from the lows hit in September.

Australian shares fell 0.4 percent in a shortened session on Monday ahead of the New Year’s Day holiday with big miners and banks losing ground as investors awaited the outcome of the U.S. budget talks.

The benchmark S&P/ASX 200 index fell 19.4 points to 4,651.9 at 0028 GMT. It rose 0.5 percent to 4,671.3 on Friday, its highest close since June 2, 2011.

Although iron ore prices had jumped to eight-month high, a weaker U.S. economy could bite into the gains in commodities, said Damien Boey, an equity strategist at Credit Suisse.