Asia stocks fall as US budget negotiations stall

BANGKOK (AP) — Heightened uncertainty about the outcome of budget negotiations in Washington among President Barack Obama, House Speaker John Boehner and other Republican lawmakers drove Asian stock markets lower Friday.
If a compromise is not in place by Jan. 1, the Bush-era tax cuts will expire and spending cuts will kick in automatically — a one-two punch to the economy that many experts fear will push the U.S. economy back into recession just as it begins to recover from the last one.
Japan's Nikkei 225 index fell nearly 0.8 percent to 9,964.53. Hong Kong's Hang Seng lost 0.8 percent to 22,483.20. South Korea's Kospi shed 0.9 percent at 1,982.49. Australia's S&P/ASX 200 fell 0.3 percent to 4,618.60. Benchmarks in Singapore, Indonesia, Thailand and Taiwan also fell. Malaysia and the Philippines rose.
U.S. stock futures tumbled after rank-and-file Republican lawmakers failed to support an alternative tax plan by House Speaker John Boehner late Thursday in Washington. That plan would have allowed tax rates to rise on households earning $1 million and up. Obama wants the level to be $400,000.
"I think the Republicans will have to yield," said Francis Lun, managing director of Lyncean Holdings in Hong Kong. "Fighting for rich men does not endear you to voters. People earning more than $1 million are considered rich, so it doesn't do the Republican Party any good to really fight for the rights of rich people."
Ironically, the two leaders had significantly narrowed their differences toward a compromise. The latest setback, with Republicans bucking their leader, left precious little time for an agreement to be reached before the "fiscal cliff" of tax increases and spending cuts goes into effect.
Dow Jones industrial futures dropped 1.5 percent to 13,070 and S&P 500 futures lost 1.6 percent to 1,418.30. Analysts cautioned, however, that market swings would be exaggerated because of light trading volumes that typically accompany end-of-year holidays.
"Approaching the weekend and holiday, volumes will likely remain thin, with choppy trading sessions while the 'fiscal cliff' talks will stay in the spotlight," said Kintai Cheung of Credit Agricole CIB in Hong Kong in an email commentary.
Among individual stocks, Mitsubishi Motors Corp. fell 7 percent, days after Japan's Transport Ministry issued a warning to the carmaker over the handling of oil leaks in mini-vehicles. Troubled electronics giant Sharp Corp. dropped 6 percent. Australian surf wear maker Billabong International rose 1.3 percent a day after chief financial officer Craig White left the troubled retailer.
Benchmark crude for February delivery fell $1.01 to $89.12 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 15 cents to finish at $90.13 per barrel on the Nymex on Thursday.
In currencies, the euro fell to $1.3194 from $1.3241 late Thursday in New York. The dollar fell to 83.95 yen from 84.42 yen.

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Pakistani polio workers get police protection

LAHORE, Pakistan (AP) — Under police guard, thousands of health workers pressed on with a polio immunization program Thursday after nine were killed elsewhere in Pakistan by suspected militants who oppose the vaccination campaign.
Immunizations were halted in some parts of Pakistan and the U.N. suspended its field participation everywhere until better security was arranged for its workers. The violence risks reversing recent progress fighting polio in Pakistan, one of three countries in the world where the disease is endemic.
The Taliban have denied responsibility for the shootings. Militants have accused health workers of acting as spies for the U.S., alleging the vaccine is intended to make Muslim children sterile.
Taliban commanders in Pakistan's troubled northwest tribal region also said earlier this year that vaccinations can't go forward until the U.S. stops drone strikes in the country.
Insurgent opposition to the campaign grew last year after it was revealed that a Pakistani doctor ran a fake vaccination program to help the CIA track down and kill al-Qaida founder Osama bin Laden, who was hiding in the town of Abbottabad in the country's northwest.
There were a few attacks on polio workers in July, but the current level of violence is unprecedented. A polio worker died Thursday after being shot in the head in the northwestern city of Peshawar a day earlier, said health official Janbaz Afridi.
His death raised to nine the number of Pakistanis working on the campaign who have been killed this week. Six of the workers gunned down were women, three of whom were teenagers. Two other workers were critically wounded. All the attacks occurred in northwest Khyber Pakhtunkhwa province and the southern city of Karachi.
Despite the threat, local officials in the eastern city of Lahore continued the vaccination drive Thursday under police escort, said one of the top government officials in the city, Noorul Amin Mengal. About 6,000 Pakistani health workers were escorted by 3,000 police as they fanned out across the city, he said.
"It would have been an easy thing for us to do to stop the campaign," he said. "That would have been devastating."
Saddaf Malik, one of the polio workers in Lahore, said the killings sent a shudder of fear through him and his colleagues.
"We will carry on with our job with determination, but we want the government to adopt measures to ensure the security of polio vaccinators," he said.
This week's killings occurred as the government and the U.N. began a vaccination drive Monday targeting high-risk areas in the country's four provinces and the semiautonomous tribal region, part of an effort to immunize 34 million children under age 5. The campaign was scheduled to end Wednesday in most parts of the country, except for Lahore, where it ran a day longer.
Government officials ended the drive early in parts of Khyber Pakhtunkhwa and in Sindh province, where Karachi is the capital, said Elias Durry, the U.N. World Health Organization's senior coordinator for polio in Pakistan. The campaign ran its full course in the provinces of Baluchistan and Punjab, where Lahore is the capital, as well as in the tribal region, he said.
The government has approximately 250,000 people working on the campaign, said Durry. Most of them have other jobs, such as teaching or working as government clerks, and sign on to the vaccination drive to earn a little more money, about $2.50 per day, officials said.
The WHO and UNICEF have about 2,000 people between them who provide technical assistance to the polio teams across the country and educate locals about the program, said Durry and Michael Coleman, a UNICEF spokesman in Pakistan. The U.N. staff were pulled out of the field and asked to work from home Wednesday.
The goal for this week's drive was to immunize 18.3 million children, but workers were only able reach about 9 million during the first two days of the campaign, said Durry.
Polio usually infects children living in unsanitary conditions, attacks the nerves and can kill or paralyze. Pakistan, Afghanistan and Nigeria remain the last battlegrounds for the fight against the disease.
There is no history of attacks on polio workers in Afghanistan, even though the country also faces a domestic Taliban insurgency. Muslim leaders in Nigeria have spoken out against polio vaccination in the country in the past, also claiming it makes children sterile. Many now support the campaign, but some Nigerians remain suspicious.
Prevention efforts have managed to reduce the number of cases in Pakistan to 56 this year, compared with 190 in 2011, a drop of about 70 percent. Most of the news cases in Pakistan are in the northwest, where the presence of militants makes it difficult to reach children. Clerics and tribal elders have been recruited to support polio vaccinations to try to open up areas previously inaccessible to health workers.
Israrullah Khan, a villager who attended the funeral of the polio worker who died Thursday, said most of the clerics and Islamic political parties in Khyber Pakhtunkhwa were in favor of the campaign.
"We don't understand why these attacks have suddenly started," Khan said. "It's very sad because they were trying to save our children's future for very low wages."

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Japan's next leader wants freer rein for military

TOKYO (AP) — Imagine that North Korea launched a missile at Japan. Tokyo could — and would certainly try to — shoot it down. But if the missile were flying overhead toward Hawaii or the continental United States, Japan would have to sit idly by.
Japan's military is kept on a very short leash under a war-renouncing constitution written by U.S. officials whose main concern was keeping Japan from rearming soon after World War II. But if Japan's soon-to-be prime minister Shinzo Abe has his way, the status quo may be in for some change.
Abe, set to take office for a second time after leading his conservative party to victory in elections last Sunday, has vowed a fundamental review of Japan's taboo-ridden postwar security policies and proposed ideas that range from changing the name of the military — now called the Japan Self-Defense Forces — to revising the constitution itself.
Most of all, he wants to open the door to what the Japanese call "collective defense," which would allow Japan's troops to fight alongside their allies — especially the U.S. troops who are obliged to defend Japan — if either comes under direct attack. The United States has about 50,000 troops in Japan, including its largest air base in Asia.
Right now, if Japan's current standoff with China over a group of disputed islands got physical, and U.S. Navy ships coming to Japan's assistance took enemy fire, Japan wouldn't be able to help them.
"With the U.S. defense budget facing big cuts, a collapse of the military balance of power in Asia could create instability," Abe said in the run-up to the election, promising to address the collective defense issue quickly. "We must foster an alliance with the United States that can hold up under these circumstances."
While welcome in Washington, which is looking to keep its own costs down while beefing up its Pacific alliances to counterbalance the rise of China, Abe's ideas are raising eyebrows in a region that vividly remembers Japan's brutal rampage across Asia 70 years ago.
"The issue of whether Japan can face up to and reflect upon its history of aggression is what every close neighbor in Asia and the global community at large are highly concerned about," Chinese Foreign Ministry spokeswoman Hua Chunying told a news conference in Beijing this week. She said any move to bolster the military "deserves full vigilance among the Asian countries and the global community."
Even so, many Japanese strategists believe the changes are long overdue.
Japan has one of the most sophisticated military forces in the world, with a quarter million troops, a well-equipped navy and an air force that will acquire dozens of F-35 Joint Strike Fighters over the next several years, in addition to its already formidable fleet of F-15s. Japan's annual defense budget is the world's sixth largest.
"We should stand tall in the international community," said Narushige Michishita, who has advised the government on defense issues and is the director of the security and international program at Tokyo's National Graduate Institute for Policy Studies.
"These are good, well-trained conventional forces," he said. "We are second to none in Asia. So the idea is why don't we start using this. We don't have to start going to war. We can use it more effectively as a deterrent. If we get rid of legal, political and psychological restraints, we can do much more. We should start playing a larger and more responsible in international security affairs."
Outside of very constrained participation in U.N.-sanctioned peacekeeping operations and other low-intensity missions, Japan's military is tightly restricted to national defense and humanitarian assistance. Although Japan did support the U.S. wars in Iraq and Afghanistan, its troops were kept well away from frontline combat.
Such restrictions, seen by conservatives as a postwar relic that has kept Japan from being a bigger player on the international stage, have long been one of Abe's pet peeves.
When he was first prime minister in 2006-2007, he was so disturbed by the kinds of crisis scenarios in which Tokyo's hands were tied that he commissioned a panel of experts to explore Japan's options. He left office before the report could be completed. His party was ousted from power two years later, and the issue was essentially dropped.
This time around, it's not clear how effectively or how soon Abe will be able to push the military issue, since stimulating the nation's economy will be his first task, and he faces strong opposition in parliament, where he has been slammed as a historical revisionist and a hawk.
But with the daily cat-and-mouse game between the Chinese and Japanese coast guards over the disputed islands not expected to end soon, polls indicate support for beefing up the military is stronger than ever.
"These are real issues, important issues," Michishita said. "And I think Abe will try to do something about it."

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Australian boy's egg collection turns into snakes

CANBERRA, Australia (AP) — A 3-year-old Australian boy was lucky to escape uninjured after a collection of eggs he found in his yard hatched into a slithering tangle of deadly snakes.
Reptile specialist Trish Prendergast said Friday that young wildlife enthusiast Kyle Cummings could have been killed if he had handled the eastern brown snakes — the world's most venomous species on land after Australia's inland taipan.
Kyle found a clutch of nine eggs a few weeks ago in the grass on his family's 1.2-hectare (3-acre) property on the outskirts of the city of Townsville in Queensland state, Prendergast said. He had no idea what kind of eggs they were.
He put the eggs into a plastic takeout food container and stashed them in his bedroom closet, where his mother, Donna Sim, found them Monday. Seven had hatched, but the snakes remained trapped under the container's lid. The remaining two eggs were probably infertile and were rotten, Prendergast said.
"I was pretty shocked, particularly because I don't like snakes," Sim told the Townsville Bulletin newspaper.
Prendergast, who is the Townsville-based reptile coordinator of the volunteer group North Queensland Wildlife Care, was handed the container on Tuesday and released the snakes into the wild that night.
She was relieved that no one had handled the snakes.
"Their fangs are only a few millimeters long at that age, so they probably couldn't break the skin, but they're just as venomous as full-grown snakes," Prendergast said.
"If venom had got on Kyle's skin where there was a cut of if he put it in his mouth, it could have been fatal," she added.
Eastern brown snakes — which can grow to more than 2 meters (6 1/2 feet) long — usually stay with their eggs but sometimes leave for short periods to feed.
"He's very lucky he didn't encounter the mother while he was taking her eggs. That also could have been fatal," Prendergast said.
The snakes were 12 to 15 centimeters (5 to 6 inches) long and had probably hatched around five days before they were released, she said, adding that they were thirsty but otherwise healthy.
Australia averages around three fatal snake bites a year, and eastern browns are responsible for the majority of them.
Sim did not immediately return a phone call seeking comment Friday.

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AP PHOTOS: A photo journey through N.Korea

PYONGYANG, North Korea (AP) — My window on North Korea is sometimes, quite literally, a window — of a hotel room, the backseat of a car, a train. Fleeting moments of daily life present themselves suddenly, and they are opportunities to show a side of the country that is entirely at odds with the official portrait of marching troops and tightly coordinated pomp that the Pyongyang leadership presents to the world.
In April, I was part of a group of international journalists that traveled by train to the launch site for this year's first, failed rocket test. We traveled in a spotless train used by the Communist leadership, and I spent the five-hour journey inside my sleeper car looking out the large, clean window at a rural landscape seen by few foreign eyes. The tracks cut across fields where large groups of farmers were at work in clusters. Occasionally, there was a plow drawn by oxen or a brick-red tractor rolling along the gravel roads. On a rocky hilltop above the train tracks, a small boy sprinted and waved at the passing train. Every few hundred yards along the entire route, local officials in drab coats stood guard, their backs to the tracks, until its cargo of foreign reporters had safely passed.
I have made 17 trips into North Korea since 2000, including six since The Associated Press bureau in Pyongyang opened in January 2012. It is an endlessly fascinating and visually surreal place, but it is also one of the hardest countries I have ever photographed. As one of the few international photographers with regular access to the country, I consider it a huge responsibility to show life there as accurately as I can. 
That can be a big challenge. Foreigners are almost always accompanied by a government guide — a "minder" in journalistic parlance — who helps facilitate our coverage requests but also monitors nearly everything we do. Despite the official oversight, we try to see and do as much as we can, push the limits, dig as deeply as possible, give an honest view of what we are able to see. Over time, there have been more and more opportunities to leave the showplace capital, Pyongyang, and mingle with the people. But they are usually wary of foreigners and aware that they too are being watched.
This has been a historic year for North Korea, with large-scale dramatic displays to mark important milestones, struggles with food shortages, crippling floods, drought and typhoons, as well as growing evidence that people's lives are changing in small but significant ways. But in a country that carefully choreographs what it shows to the outside world, separating what is real from what is part of the show is often very difficult.
Last spring, as North Korea was preparing for the 100th birthday of its late founder, Kim Il Sung, citizens practiced for weeks, even months, for the large-scale military parade and public folk dancing that was part of the celebration.
One morning, on our way through town, we saw small groups of performers walking home from an early rehearsal. They wore their brightly colored traditional clothing, but covered over with warm winter coats. In their hands were the red bunches of artificial flowers that they shake and wave in honor of country's leaders during mass rallies.
From the van window, I saw a woman standing alone, holding her bouquet as she waited for the bus. It was, to me, a more telling moment than the actual events we would cover a week later, a simple but provocative glimpse into one person's life.
For this project, I used a Hasselblad XPAN, a panoramic-view film camera that is no longer manufactured. Throughout the year, I wore it around my neck and shot several dozen rolls of color negative film in between my normal coverage of news and daily life with my AP-issued digital cameras.
The XPAN is quiet, discrete, manual and simple. Because it has a wide panoramic format, it literally gives me a different view of North Korea. The film also reflects how I feel when I'm in North Korea, wandering among the muted or gritty colors, and the fashions and styles that often seem to come from a past generation.
In my photography, I try to maintain a personal point of view, a critical eye, and shoot with a style that I think of as sometimes-whimsical and sometimes-melancholy. My aim is to open a window for the world on a place that is widely misunderstood and that would otherwise rarely be seen by outsiders.
I hope these images help people to develop their own understanding of the country, one that goes beyond the point-counterpoint presented by Pyongyang and Washington. And maybe they can help create some sort of bridge between the people of North Korea and the rest of the world.

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Tanzania c/a deficit widens on higher oil import costs

DAR ES SALAAM (Reuters) - Tanzania's current account deficit increased by 13.1 percent in the year to October following a rise in imports of oil and of machinery for gas and oil exploration, its central bank said on Friday.
The deficit in east Africa's second-biggest economy, which is fast becoming a regional energy hub following recent major discoveries of natural gas in its offshore waters, widened to $3.84 billion from $3.397 billion in the year-ago period.
Oil imports surged 21.3 percent to $3.516 billion due to a rise in domestic demand.
"There was ... a substantial increase in imports of machinery associated with an increase in gas and oil exploration activities," said the central bank in its latest monthly economic review.
The country's total imports bill rose by 15.8 percent to $13.06 billion, while exports jumped by 14.9 percent to $8.43 billion from a year ago.
The central bank said gold exports, the country's top foreign exchange earner, fetched $2.17 billion in the year to October from $2.15 billion in the same period last year, reflecting an increase in gold prices on the world market.
Tanzania, with a population of around 43 million people, is Africa's fourth-largest gold producer after South Africa, Ghana and Mali. Gold accounted for 51.5 percent of the country's total non-traditional exports.
Also a big tourism destination in the region, Tanzania said earnings from that sector increased to $1.53 billion from $1.34 billion a year ago as tourist arrivals rose.
Gross official foreign exchange reserves held by the central bank increased to $4.1 billion in the year to October, or about 3.8 months of import cover, from $3.484 billion a year ago.

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The American Economy Is on Fire Again, Apparently

For the first time in years, everyone seems to agree that the economy truly appears to be back on track, as most of this week's new economic indicators zoomed past expectations. Earlier this morning, durable goods orders (an important of measure of how the manufacturing sector is doing) came in with impressive figures, while personal income and savings rates all blew past economists' expectations, and consumer spending is up, too. Yesterday, it was GDP, which beat even the highest predictions and was the best number seen in years.
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That's not all. Other manufacturing surveys show huge gains. Home sales are up, foreclosures are down, and more construction is on the way. FedEx and UPS are both setting holiday shipping records. All this despite the expected slowdown from Hurricane Sandy. Even the international news is good. Japan's stock market is way up, Greece got its bailout, and the European debt crisis is (for now) under control. The recession is over, and the people are actually starting to notice:
Also big beat on income and spending. Economy is humming.
— Joseph Weisenthal (@TheStalwart) December 21, 2012
The economy is on fire
— Also sprach Analyst (@theanalyst_hk) December 21, 2012
Recent strength of economy shows how sad it would be if Washington decided to kill the momentum.
— Zachary A. Goldfarb (@Goldfarb) December 21, 2012
That's what makes the ongoing fiscal cliff fight so frustrating. Already markets were down after the House Republicans' failure to pass Speaker John Boehner's Plan B last night, and if no deal is made on taxes or the sequester, odds are that the economy will come to a grinding halt in January. (The current growth is even more remarkable when you consider that many people are expecting that scenario to happen.) If a deal is stuck, no matter what form it takes, some people are seeing their taxes go up and at least some government programs meant to provide stimulus will die. Even if you believe in the (dubious) long-term benefits of austerity, the economy will almost certainly take a hit at the beginning of 2013, economists say.
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There's also one major data point that sadly refuses to budge: unemployment. Claims were still up this week, even as companies and consumers are spending more money. Maybe a solution on taxes would get people hiring again, but all the positive economic gains have just not created as many jobs as had been hoped. However, if things keep improving at this rate, 2013 could be a different story. If the government can manage to stay out of its own way.
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Still, everyone said that whoever won the presidential election would also be winning the chance to oversee (and take credit for) a big economic recovery. The hard part will be keeping it going.

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GE to buy aviation unit of Italy's Avio for $4.3 billion

MILAN (Reuters) - General Electric Co has agreed to buy the aviation business of Italy's Avio for $4.3 billion, in a sign of confidence about the country's underlying strength despite its deep recession.
The deal comes as Europe's fourth-biggest economy labors to become more competitive under a reform agenda set by technocrat prime minister Mario Monti, who is due to step down on Friday before general elections seen in February.
"We are convinced that Italy will exit the crisis," Nani Beccalli, president and chief executive of GE Europe, told reporters on Friday. "There are undoubtedly hurdles linked to red tape. But the strategic value of the deal is so big (it would offset other issues)", Beccalli said.
GE agreed to buy Avio from private equity fund Cinven and Italian state-controlled defense group Finmeccanica . The move frustrated the aspirations of France's Safran and Italy's state-backed Strategic Fund, which had been trying over the last few months to take over Avio.
GE, whose businesses range from infrastructure technology to financial services, said Avio would boost its global supply chain capabilities as its engine production rates rise to meet growing customer demand.
Avio, which makes components for the GE Dreamliner engine used by Boeing Co , ranks among Italy's industrial jewels and is one of the most technologically advanced companies in its field.
William Blair & Co analyst Nick Heymann said the move, which amounts to GE buying a supplier to its jet engine program, was intended in part to protect new technologies.
"They're trying to get more vertically integrated and have more control over critical aspects of the manufacturing process," he said.
GE is developing composite ceramics for jet engines, a technology it also plans to use in other products such as electric turbines and equipment used in oil and gas production.
"Rather than developing (composite ceramics) and trust someone not to give it away, you want to keep it in-house," Heymann said.
The move could be a sign that GE in coming years might be ready to consider larger acquisitions outside of the $1 billion to $3 billion range that GE's CEO, Jeff Immelt, has described as the company's sweet spot over the past few years.
"We're slowly inching our way back into larger capital redeployment," Heymann said.
GE shares were down 0.6 percent at $20.92 on Friday morning on the New York Stock Exchange.
STRATEGIC ASSET
GE said the purchase price values the aviation business of Avio, which also supplies Rolls Royce Holdings , at 8.5 times its expected 2012 core earnings before interest, taxes, depreciation and amortization.
"No nitpicks here. This is an excellent deal," said Brian Langenberg, of independent research firm Langenberg & Co.
Debt-laden Finmeccanica, which owned 14 pct of Avio, will use the 260 million euros it is earning from its stake sale to lower debt. The sale is the first of a number of disposals the company needs to carry out to keep its investment-grade credit rating.
The U.S. group will not be buying Avio's space unit, which the Italian government considers strategic. The unit, which is expected to make sales of between 280 million euros and 285 million in 2012, will remain for the time being under the control of Cinven and Finmeccanica.
Avio's revenue in the aviation sector was 1.7 billion euros ($2.25 billion) in 2011, with more than 50 percent derived from components for GE and GE joint-venture engines.
Cinven had bought Avio in 2006 for some 2.6 billion euros.
Under GE's ownership, Avio will invest 1.1 billion euros over the next 10 years, company executives said.
GE said it planned to pursue new opportunities for Avio in the power generation, oil and marine products industries.
The GE deal comes after a planned initial public offering for Avio was scrapped earlier in 2012 because of weak market conditions.

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Two killed in supermarkets looting in Argentina

BUENOS AIRES (Reuters) - At least two people were killed in Argentina as looters broke into supermarkets in several cities, stirring memories of the country's devastating economic crisis 11 years ago.
The violence erupted on Thursday in the Patagonian ski resort of Bariloche when dozens of looters stormed a supermarket and made off with LCD televisions and other goods.
Government officials condemned the violence and deployed 400 military police to the southern city. Similar unrest broke out in the central city of Rosario and in several parts of the urban sprawl that surrounds the capital Buenos Aires early on Friday.
"These are isolated incidents and in none of them have we seen people stealing food. They've been taking televisions," said Cabinet Chief Juan Manuel Abal Medina, blaming the unrest on opposition trade union groups.
Two people were killed during looting in Rosario, said provincial security secretary Matias Drivet. Several hundred people were arrested nationwide.
The unrest is more bad news for President Cristina Fernandez, who often contrasts the country's current economic stability with the 2001/02 crisis that plunged millions of Argentines into poverty and unleashed a wave of looting for food in supermarkets.
Fernandez was re-elected by a landslide just over a year ago, but her approval ratings have since plunged due to sluggish economic growth, high inflation and middle-class anger over currency controls, and the leader's combative style.

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US budget negotiations setback drives stocks down

PARIS (AP) — A failed attempt find a compromise in U.S. budget negotiations sent global stock markets plummeting Friday, as investors feared the world's largest economy could teeter into recession if no deal is found.
Without an agreement, the U.S. economy will fall off the so-called "fiscal cliff" on Jan. 1 when Bush-era tax cuts expire and spending cuts kick in automatically. The measures were designed to have a negative effect on the U.S. economy, in the hopes that the feared outcome would push lawmakers and President Barack Obama to find a deal.
"We've seen Europe's politicians repeatedly flirt lemming-like with cliff-diving in 2012, and now it's the turn of U.S. 'leaders,'" said Kit Juckes, an analyst with Societe Generale. "The nagging fear is always there that someone, on one side of the Atlantic or the other, will forget to let rational thought take over at the last second."
Amid the uncertainty, European shares fell. France's CAC dropped 0.15 percent to close at 3,661, while the DAX in Germany dropped 0.5 percent to end the day 7,636. The FTSE index of leading British shares retreated 0.3 percent to 5,939.
The euro also fell sharply, dropping 0.5 percent to $1.3159.
In Asia, Japan's Nikkei 225 index closed 1 percent lower at 9,940.06. Hong Kong's Hang Seng lost 0.7 percent to 22,506.29. South Korea's Kospi shed 1 percent at 1,980.42. Australia's S&P/ASX 200 fell 0.2 percent to 4,623.60. Mainland Chinese stocks were mixed.
U.S. stock futures tumbled after rank-and-file Republican lawmakers failed to support an alternative tax plan by House Speaker John Boehner late Thursday in Washington. That plan would have allowed tax rates to rise on households earning $1 million and up. Obama wants the level to be $400,000.
In midday trading trading in New York, the Dow Jones industrial average dropped 1.25 percent to 13,147, while the broader Standard & Poor's index fell 1.3 percent at 1,424.
"The fiscal cliff is a real threat not just for U.S. growth next year but for the outlook for global growth," said Jane Foley, currency analyst with Rabobank.
When growth slows, energy demand does, too, and oil prices fell in anticipation.
Benchmark crude for February delivery fell $1.78 to $88.35 per barrel in electronic trading on the New York Mercantile Exchange.
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