Senate leaders have announced an agreement to extend the government’s borrowing authority into December, temporarily averting an unprecedented federal default that experts say would have devastated the economy.

“Our hope is to get this done as soon as today,” the majority leader, Chuck Schumer, declared on Thursday as he opened the Senate.

In their agreement, Republican and Democratic leaders edged back from a perilous standoff over lifting the nation’s borrowing cap, with Democratic senators accepting an offer from the Senate Republican leader, Mitch McConnell.

McConnell made the offer a day earlier, just before Republicans were prepared to block longer-term legislation to suspend the debt limit and as Joe Biden and business leaders voiced their concerns that a default would disrupt government payments to millions of people and throw the country into recession.

Wall Street continued to rally on the news. The S&P 500 rose 1.5% by midday, and the Nasdaq composite, with a heavy weighting of technology stocks, rose 1.8%.

The Senate was set to vote on the measure on Thursday evening.

Earlier, the White House indicated the Biden administration was relieved if underwhelmed by the temporary fix. The principal deputy press secretary, Karine Jean-Pierre, told reporters on Air Force One en route to Chicago with the president it was “a positive step forward”.

She added: “It gives us some breathing room from the catastrophic default we were approaching because of Senator McConnell’s decision to play politics with our economy …this should have never been a political game from the start … addressing the debt limit shouldn’t be a partisan football. This is about paying the debt that both parties have already incurred.”

The agreement sets the stage for a sequel of sorts in December, when Congress will again face pressing deadlines to fund the government and raise the debt limit before heading home for the holidays.

The agreement will allow for raising the debt ceiling by about $480bn, according to a Senate aide familiar with the negotiations who spoke on condition of anonymity. That is the level that the treasury department has said is needed to get to 3 December.

Congress had just days to act before the 18 October deadline, when the treasury department had warned it would quickly run short of funds to handle the country’s already accrued debt load.

McConnell and Senate Republicans have insisted that Democrats will have to go it alone to raise the debt ceiling and allow the treasury to renew its borrowing so that the country can meet its financial obligations.

Further, McConnell has insisted that Democrats use the same cumbersome legislative process, called reconciliation, that they used to pass a $1.9tn Covid-19 relief bill and have been employing to try to pass Biden’s $3.5tn measure to boost safety net, health and environmental programs.

McConnell said in his offer on Wednesday that Republicans would still insist that Democrats use the reconciliation process for a long-term debt limit extension.

However, he said Republicans were willing to “assist in expediting” that process, and in the meantime Democrats may use the normal legislative process to pass a short-term debt limit extension with a fixed dollar amount to cover current spending levels into December.

While he continued to blame Democrats, his offer will also allow Republicans to avoid the condemnation they would have gotten from some quarters if a financial crisis were to occur.

At a White House event with top business leaders, Biden had shamed Republican senators for threatening to filibuster any suspension of the $28.4tn cap on the government’s borrowing authority.

“It’s not right and it’s dangerous,” Biden said of the resistance by Senate Republicans.

Before the White House meeting, the administration warned that if the borrowing limit wasn’t extended, it could set off an international financial crisis the United States might not be able to manage.

“A default would send shock waves through global financial markets and would likely cause credit markets worldwide to freeze up and stock markets to plunge,” the White House council of economic advisers said in a new report. “Employers around the world would likely have to begin laying off workers.”

The recession that could be triggered could be worse than the 2008 financial crisis because it would come as many nations are still struggling with the Covid-19 pandemic, the report said.

Once a routine matter, raising the debt limit has become politically treacherous over the past decade or more, used by Republicans, in particular, to rail against government spending and the rising debt load.