WASHINGTON - President Barack Obama signed emergency debt-limit legislation to avoid an unprecedented national default that he said would have devastated the US economy, closing out months of rancorous debate that nearly paralyzed Washington.

Just hours before a midnight deadline, Obama signed the bill that begins the process of curbing the country's spiraling debt and avoids a default by increasing America's $14.3 trillion cap on borrowing. Obama signed the legislation into law shortly after the Senate passed it Tuesday. The House of Representatives approved the legislation Sunday night.

Administration officials warned of disastrous consequences for the struggling US economy that exhibited new weakness Tuesday with reports that consumer spending fell to levels not seen in nearly two years. Some financial analysts fear the US could fall back into recession.

Though the compromise deal passed, it deeply angered both conservative Republicans and liberal Democrats. Conservatives said it did to little to shrink government and slash spending. Liberals bemoaned cuts to programs they had fought to keep in place for years.

A stern-faced Obama said at the White House that raising the debt limit was essential but more _ and different _ economic steps were badly needed.

"We've got to do everything in our power to grow this economy and put America back to work," the president said, arguing, as he has throughout the debt controversy, that fixing the economy requires increased tax revenues in tandem with spending cuts. He said that must happen in the upcoming November attempt to whittle still more out of the budget.

Wall Street crumpled Tuesday, dismayed by reports of new economic weakness and unimpressed by Congress' prescription. The Dow Jones industrial average sank by 2.2 percent, its eighth straight losing session. Standard & Poor's 500 lost 2.6 percent to finish at its lowest point of the year.

The White House and congressional leaders said the debt ceiling and spending cut legislation was important to reassure investors at home and abroad. Avoiding default was essential to preserving America's AAA credit rating. With the signing of the debt deal, Moody's Investors Service, one of the three main ratings agencies, said it would leave US bonds with their triple-A rating but with a negative outlook to show there is still a risk of a downgrade.

The compromise deal to persuade Republican lawmakers to raise the federal debt limit will cut federal spending by $2.1 trillion or more over the next decade. But Obama immediately challenged Republicans to accept higher taxes on the wealthy in the November round of deficit cuts later this year. They adamantly refused to accept that idea during the past months' dispute, and there was little evidence of a change in position.

"The American people agreed with us on the nature of the problem. They know the government didn't accumulate $14.3 trillion in debt because it didn't tax enough," said the party's leader in the Senate, Mitch McConnell.

While Democrats have complained about the concessions Obama accepted in the deal, McConnell conceded that Republicans got only part of what they wanted. He pointed to next year's elections with control of the White House and Congress at stake. The Republicans control the House, while Democrats hold power in the Senate and White House.

Polls showed that Congress and Obama have taken a sharp hit in US public opinion because of the prolonged battle over lifting the debt ceiling, something that past Congresses have done as a matter of course.

Obama placed his signature on bill less than two hours after a bipartisan 74-26 vote in the Senate. The House approved the measure Monday night on a 269-161 roll call that also reached across party lines and was sealed by a rap of the gavel by Speaker John Boehner.

This week's peace pact between Democrats and Republicans is unlikely to be long-lived.

The bill sets up a powerful 12-member committee of lawmakers with authority to recommend fresh deficit savings from every corner of the federal budget.

Politically sensitive benefit programs such as Social Security pensions and the Medicare program for the elderly will be on the table as the panel of six Republicans and six Democrats works against a November deadline. So, too, an overhaul of the tax code.

As an incentive for Congress to act, failure to do so would trigger $1.2 trillion in automatic spending cuts, incurring Defense Department cuts that Republicans oppose as well as cuts to domestic programs cherished by Democrats.

Even before the president signed the legislation, he and Republicans were maneuvering for political position on the next stage.

"We can't balance the budget on the backs of people who have borne the biggest brunt of this recession," the president said, renewing his call for higher taxes on the wealthy. "Everyone is going to have to chip in. It's only fair."