UPDATE 12-Democrats delay vote on infrastructure plan, bowing to progressives

(Updates with no vote Thursday night)

By Susan Cornwell and Richard Cowan

WASHINGTON, Sept 30 (Reuters) - Democratic leaders of the U.S. House of Representatives delayed a planned vote on a $1 trillion bipartisan infrastructure bill that had been set for Thursday, bowing to party progressives who had demanded action on a larger social policy bill first.

House Speaker Nancy Pelosi and President Joe Biden have been scrambling to patch up differences between progressive lawmakers, who want a $3.5 trillion social spending package to go along with the infrastructure plan, and moderates wanting a smaller bill.

The move gave Biden and Democratic leaders more time to try to assemble the votes to gain support for a key part of his agenda.

"A great deal of progress has been made this week, and we are closer to an agreement than ever," said White House spokeswoman Jen Psaki. "But we are not there yet, and so, we will need some additional time to finish the work, starting tomorrow morning first thing."

Congress earlier on Thursday wrestled Washington back from the brink of a government shutdown by voting to continue funding the government through Dec. 3. Biden signed the measure before funding was to run out at midnight.

"There’s so much more to do. But the passage of this bill reminds us that bipartisan work is possible and it gives us time to pass longer-term funding to keep our government running and delivering for the American people," Biden said in a statement.

The House approved the measure in a bipartisan 254-175 vote, hours after it passed the Senate by 65-35.

Negotiations on the other legislation stretched into the evening. In a statement to her Democratic colleagues, Pelosi called it a "productive and crucial day" and said discussions continued.

But as the hours stretched on, it became clear no deal was apparent.

Some progressive Democrats have vowed to vote against the bill to invest in the nation's roads, bridges and other infrastructure, angry that Democrats have not yet reached agreement on a multitrillion-dollar companion bill with funding for social services and to address climate change.

Faced with increasingly stiff odds of passing their $3.5 trillion social spending proposal, Biden and his aides are trying to find out what narrower proposal could unite an ideologically fractured Democratic caucus of lawmakers, according to people familiar with the matter.

Lawmakers on the party's left flank have said they will not vote for the infrastructure bill unless they feel certain their priorities will be reflected in the social spending bill.

Democratic Representative Ilhan Omar, a leader of House progressives, told reporters: "Nothing has changed with our caucus members. We don't have the votes to pass infrastructure."

Moderate Democratic Senator Manchin has proposed a spending package of about $1.5 trillion. Another Democratic moderate, Senator Kyrsten Sinema, declined to say whether she agreed with Manchin's proposal. She has met with Biden multiple times to discuss the bill.

With razor-thin majorities in Congress, Democrats cannot afford to lose many votes if they want to pass their agenda. They are unlikely to win much support from House Republicans eager to take back the majority in the 2022 congressional elections.

The stopgap spending bill approved in the Senate also provides aid for communities hard hit by hurricanes, wildfires and other natural disasters. Money to help Afghan refugees is included as well.

DEBT-CEILING THREAT

In yet another high-stakes battle, congressional Democrats and Republicans continued brawling over giving the Treasury Department additional borrowing authority beyond the current statutory limit of $28.4 trillion. A historic U.S. debt default could occur around Oct. 18, Treasury Secretary Janet Yellen has estimated, if Congress fails to act.

Republicans want no part of the debt limit increase, saying it is Democrats' problem since they control Congress and the White House. Democrats note that about $5 trillion of the nation's debt is the result of tax cuts and spending passed during Republican Donald Trump's presidency.

The House approved a bill late on Wednesday suspending the debt limit through December 2022. The Senate could vote on it "as early as next week," Senate Majority Leader Chuck Schumer said, but Republicans are expected to block it again.

Yellen said on Thursday it would be a "catastrophe" if Congress does not raise the debt ceiling. The uncertainty is starting to filter into financial markets, although few believe the nation will ultimately default.

The looming debt crisis is rattling Americans on both sides of the political spectrum, according to an Ipsos national opinion poll conducted for Reuters on Tuesday and Wednesday.

It showed that 65% of adults, including eight in 10 Democrats and five in 10 Republicans, are "very" or "somewhat" concerned that Congress will fail to reach a debt deal in time.

The poll also found that 30% think congressional Republicans deserve the most blame if there is a government shutdown, while 21% would blame Democrats in Congress and 16% would blame Biden.

(Reporting by David Morgan, Susan Cornwell and Richard Cowan; Additional reporting by Jarrett Renshaw, Chris Kahn and Trevor Hunnicutt; Writing by Andy Sullivan and Steve Holland; Editing by Scott Malone, Cynthia Osterman, Peter Cooney and Gerry Doyle)