European stocks slip as US fiscal gloom halts Christmas rally

Europe's main stock markets mostly fell on Thursday, with investors nervous that US leaders have still not agreed a deal to avert the fiscal cliff, dealers said.

In late morning deals, London's benchmark FTSE 100 index of leading shares nudged 0.05 percent higher to 5,964.41 points.

However, Frankfurt's DAX 30 index fell 0.10 percent to 7,660.82 points and the Paris CAC 40 slid 0.03 percent to 3,663.46.

The Milan market shed 0.35 percent and Madrid shares declined by 0.13 percent in value.

In foreign exchange deals, the euro edged up to $1.3238, up from $1.3226 late in New York on Wednesday, when it had struck an 8.5-month peak at $1.3308. Gold prices firmed to $1,668.51 an ounce on the London Bullion Market, from $1,665.

Trading in shares in the NYSE Euronext trans-Atlantic stock market was suspended for what a spokesman for the company said was technical reasons, but there was market speculation that US rival InterContinental Exchange (ICE) might be mounting a takeover offer.

European equities had staged a "Santa" rally on Wednesday, driven by hopes of a breakthrough deal to avoid the US fiscal cliff and following news of rebounding German business confidence.

"The Christmas rally so far has been fuelled purely on the expectation that there will be a deal on the fiscal cliff in the US ahead of the festive break next week that is rapidly approaching," said Capital Spreads boss Angus Campbell.

"Yesterday a spanner was thrown in the works and it looks like negotiations have taken a backward step.

"White House officials admitted yesterday that negotiations deteriorated had in the last 24 hours -- and so the wave of optimism that's been sending equities higher in the past couple of weeks has taken a whack."

With less than two weeks to go before the fiscal cliff of huge tax hikes and deep spending cuts is due to take effect, US lawmakers have still not reached a compromise budget deal to cut the nation's deficit with less painful measures.

President Barack Obama said Wednesday he and the Republicans had narrowed differences to "a few hundred billion dollars". But a deal remains elusive.

Republicans are loath to raise taxes, while Democrats do not want to cut spending on programmes such as Medicare.

House Speaker John Boehner, the Republican negotiating with the president, has said he is willing to extend tax breaks for everyone earning less than $1 million per year. Obama has said, however, he is willing to go no higher than $400,000.

Boehner announced Wednesday that he will move to pass his measure, which he describes as his "Plan B", through the House Thursday but Obama warned he would veto the legislation.

"At some point there's got to be... a recognition on the part of my Republican friends that, you know, take the deal," Obama told reporters, as the two sides struggled to reach agreement.

While both sides have rejected the other's offers for a deal they said that talks are ongoing.

However, US traders were not impressed. On Wall Street the Dow finished 0.74 percent lower, the S&P 500 dropped 0.76 percent and the Nasdaq lost 0.33 percent.

Asian markets traded mixed on Thursday following big gains in the previous session.

The yen slipped against the euro and dollar after Japan's central bank unveiled more huge monetary easing but it held on to earlier gains as traders had mostly expected the new measures.

Tokyo fell 1.19 percent on profit-taking after surging to an eight-month high on Wednesday.

But Seoul closed 0.32 percent higher, with the election of conservative Park Geun-hye seeming to have little effect, although dealers were broadly happy as she favours stability over big change.

Shanghai gained 0.28 percent, Sydney was up 0.35 percent and Hong Kong staged a late rally to end 0.16 percent higher.

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