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U.S. House Republicans weigh last-ditch challenge to fiscal deal

WASHINGTON (Reuters) - The U.S. Congress headed toward another showdown over the "fiscal cliff" on Tuesday as Republicans in the House of Representatives mounted a last-ditch effort to reshape a tax deal meant to prevent Washington from pushing the world's biggest economy into recession.

If successful, the measure would set up a high-stakes showdown with the Democratic-controlled Senate and risk a stinging rebuke from financial markets about to open in Asia.

If it fails, lawmakers - including many Republicans - would likely back tax hikes for the wealthiest Americans and thus resolve a main chapter of the fiscal crisis that has consumed Washington for months.

One senior Republican suggested the House would ultimately approve a Senate bill that raises taxes, ending the current fiscal cliff crunch and giving President Barack Obama a victory, while easing worries in financial markets.

"We've gone as far as we can go and I think people are ready to bring it to a conclusion," Republican Representative Jack Kingston of Georgia said. "We fought the fight."

The measure being considered on Tuesday night by House Republicans would add $330 billion in spending cuts over 10 years to the Senate bill, which raises taxes on the wealthiest U.S. households by $620 billion over the same period.

But some House Republicans were worried that changing the Senate bill would only drag out the political drama.

And Senate Democrats say they will refuse to consider any changes to their bill, which passed 89 to 8 in a rare display of unity early Tuesday morning.

Lawmakers have struggled to find a way to head off across-the-board tax hikes and spending cuts that began to take effect at midnight, a legacy of earlier failed budget deals that is known as the fiscal cliff.

OVER THE CLIFF

Strictly speaking, the United States went over the cliff in the first minutes of the New Year because Congress failed to produce legislation to halt $600 billion of tax hikes and spending cuts set for 2013 that started kicking in on January 1.

But with financial markets and federal government offices closed for the New Year's Day holiday, lawmakers had a little more time to work out a compromise without real-world consequences.

House Speaker John Boehner has struggled over the past two years to control his members, and he might have difficulty rounding up the 217 votes needed for passage of the spending cuts.

Republican aides said if that happened they would then hold an up-or-down vote on the Senate's bill. With House Democrats largely behind the Senate measure, Boehner would then only need to find 40 or so votes from his side to send the measure on to Obama to sign into law.

Republican Representative Steve LaTourette of Ohio, a close ally of Boehner, suggested the speaker could find that much support among his own ranks.

Republicans could face a backlash if they scuttle the deal. Income tax rates rose back to 1990s levels for all Americans at midnight, and across-the-board spending cuts on defense and domestic programs would begin to kick in on Wednesday.

Economists say the combination of tax cuts and spending cuts could cause the economy to shrink, and public opinion polls show Republicans would shoulder the blame.

(Additional reporting by Rachelle Younglai and; David Lawder, Writing by Andy Sullivan; Editing by Alistair Bell and Eric Beech)