No Deal As US Nears Fiscal Cliff Deadline

Investors are reacting nervously as the clock ticks down to the New Year deadline for a deal to prevent the US falling over the so-called 'fiscal cliff'.

A series of costly tax rises and spending cuts worth more than $500bn will come into force as 2013 begins in America, unless Congress and the White House can agree compromise measures to stop them being implemented.

The 'fiscal cliff', as it came to be known, was designed to help tackle the country's huge debt pile in the event squabbling politicians could not do a deal beforehand to ease the burden.

The fiscal cliff worries investors as economists fear the pain of implementing the measures will tip the US back into recession and therefore hit world demand and growth prospects.

In London, the FTSE 100 lost 0.5% of its value to close at 5897 in what was a shortened trading day because of the New Year holiday.

The CAC 40 in France bucked the trend as legal opposition to the country's controversial plan to tax the rich at 75%, helped add value.

While Germany's DAX is closed, the Dow Jones will be open for business on Wall Street later as Democrats and Republicans begin their final push for a deal to avert the fiscal cliff.

Dow Futures currently point to a higher opening after five days of falls despite a deal palatable to both sides remaining elusive.

US Senate Majority Leader Harry Reid said he has made a counter-offer to a Republican proposal put forward on Saturday but later admitted "serious differences" remain.

The two sides have reportedly moved closer on tax increases while Republicans have indicated they could withdraw a contentious proposal to slow the growth of social security retirement benefits.

Mitch McConnell and Harry Reid still heading in different directions

Senate Republican leader Mitch McConnell said he had asked Vice President Joe Biden to become involved in a last-minute effort to reach an agreement.

He added that there was no single issue blocking an agreement but that "the sticking point appears to be a willingness, an interest, or courage to close the deal."

"I'm willing to get this done, but I need a dance partner," Mr McConnell said.

Both the Senate and the House of Representatives now have little time to debate and then pass a deal that has eluded the White House and Congress for weeks.

President Obama, who called congressional leaders to the White House on Friday, addressed the crisis once more as he appeared on NBC's Sunday morning talk show Meet the Press.

The President said Republicans were unwilling to see tax rates raised for the richest taxpayers.

"They say that their biggest priority is making sure that we deal with the deficit in a serious way," Mr Obama said.

"But the way they're behaving is that their only priority is making sure that tax breaks for the wealthiest Americans are protected.

"That seems to be their only overriding, unifying theme," he added.

If a compromise can be found, the two parties will then decide whether to put it to the vote on New Year's Eve in the Senate and then the Republican-controlled House of Representatives.

President Obama has pressed lawmakers to clinch a deal, even if they must reach a compromise that lacks the significant deficit-reduction measures both sides had sought.

"I was modestly optimistic yesterday, but we don't yet see an agreement," the President told NBC in the interview recorded on Saturday. "And now the pressure's on Congress to produce."

At least one senior Republican said he was optimistic of a deal, and a "political victory" for Mr Obama.

Senator Lindsey Graham told Fox News that the odds are "exceedingly good" a deal can be done.

"I don't think people want to go over the cliff," he said.

The US is facing the fiscal cliff because tax rate cuts dating back to George W Bush's presidency expire at the end of the year.

Mr Obama originally insisted on letting the tax cuts expire on households earning more than $250k (£154k) but later upped that threshold to $400k (£246k).

The pending reductions in spending, which will hit everything from social programmes to the military, were put in place last year as an incentive to both parties to find ways to cut America's soaring deficit.

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