March 16 (Bloomberg) -- The U.S. Congress approved a $781 billion increase in the federal government's debt limit, the fourth time lawmakers have raised the cap since President George W. Bush took office.

The Senate voted 52-48 to increase the legal limit on federal borrowing to $8.97 trillion, up from $8.18 trillion. The House approved the measure last year, meaning the legislation now goes to the president for his signature.

Treasury Secretary John Snow warned Congress in increasingly dire terms that the government couldn't keep paying its bills, and risked defaulting on its debt, without an immediate increase in the cap. The ceiling was lifted about 30 minutes after the Treasury postponed the scheduled announcement of the sale of three-month and six-month Treasury bills. An hour later Treasury said it would sell $37 billion in bills.

After the vote, Snow said lawmakers had protected ``the full faith and credit of the United States'' and ensured the government ``can deliver on promises already made, such as Social Security and Medicare payments and aid for the victims of the 2005 hurricanes.''

The increase in the debt limit will bring more borrowing and ``possibly a new round of spending,'' said Richard Schlanger, who manages about $4 billion of fixed-income assets, including Treasury bonds, at Pioneer Asset Management in Boston. ``As long as foreigners are willing to finance us, bring it on.''

Lambasting Bush

While the vote was never in doubt, Democrats used the occasion to lambaste the administration's fiscal policies.

Minority Leader Harry Reid, a Democrat from Nevada, accused Republicans of pushing ``reckless'' policies that had created ``an explosion of debt'' over the course of the past five years. Republicans said the vote was needed to protect the nation's credit.

No Democrats voted for the debt-limit increase. Three Republicans voted against it: Senators Tom Coburn of Oklahoma, John Ensign of Nevada and Conrad Burns of Montana.

Lawmakers also rejected, 55-44, a Democratic proposal that would have required the Treasury Department to study the economic and security implications of the nation's foreign-held debt.

Overseas Investors

``We're funding a war, we're trying to fund certain programs,'' said Kevin Giddis, head of fixed-income trading at brokerage firm Morgan Keegan Inc. in Memphis, Tennessee. ``We need'' foreign investors. ``We're going to continue to need them because if they go away we're going to have an inflationary situation.''

The government will spend $217 billion on interest on the debt this year, according to the Congressional Budget Office. By contrast, federal spending for the Department of Education is $83 billion.

The Bush administration is leading the country down ``a reckless course of crushing debt, deficit-financed tax cuts and increasing the burden on the middle class,'' Senator Hillary Rodham Clinton, a New York Democrat, said.

Shifting Money

For the last month the Treasury has been moving money between government accounts to stay below the debt limit and keep the government running. Snow last week authorized the government to use the $15 billion available in the exchange stabilization fund and issued a ``debt issuance suspension period'' to stop temporarily investments in the Civil Service Retirement and Disability Fund. The Treasury also redeemed some of the fund's current investments.

Last month Snow stopped investing money from the Government Securities Investment Fund in Treasuries, which requires the issuing of notes, and suspended sales of state and local government securities.

The Treasury said in January it plans to borrow $188 billion from January to March, the most ever for a single quarter.

``The Fed Chairman's been concerned about the deficit,'' Giddis said, referring to Federal Reserve chief Ben S. Bernanke. ``If the Fed's concerned about anything, we as traders and investors should be concerned as well.''

Fourth Debt Increase

This is the fourth time the administration of President George W. Bush has asked lawmakers to raise the debt limit and it brings the ceiling to 70.3 percent of gross domestic product, the highest since the 1997 increase. The four debt-limit increases in the 1990s pushed the ceiling above 70 percent of GDP, though it fell below that level by 2002.

Congress complied with the last request, in November 2004, only after the Treasury was forced to delay auctioning bills and notes and move money among government pension funds.

Since Bush took office in 2001, the federal budget has gone from four years of surpluses, the longest such run since before the Great Depression, to deficits brought on by a recession, tax cuts, the Sept. 11 attacks, wars in Afghanistan and Iraq and Gulf Coast hurricane damage.

Bush last month sent Congress a $2.77 trillion budget request for fiscal 2007 that calls for a deficit of $354 billion, compared with a record $423 billion forecast for this year. The Bush administration says it expects to shave the deficit to less than 2 percent of gross domestic product by 2009, from 3.2 percent this year.

The Treasury estimates it will borrow $427 billion in fiscal 2006 and $373 billion in fiscal 2007 to fund government operations, the budget showed. The government borrowed $297 billion in 2005, according to the documents.

To contact the reporters on this story: Alison Fitzgerald in Washington at afitzgerald2@bloomberg.net; Brian Faler in Washington at bfaler@bloomberg.net

Last Updated: March 16, 2006 14:09 EST