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 0.3 percent to 10,014.17. Hong Kong's Hang Seng lost 0.8 percent to 22,470.67. South Korea's Kospi shed 1.1 percent at 1,977.08. Australia's S&P/ASX 200 fell 0.5 percent to 4,612.10. Benchmarks in Singapore and Taiwan also fell. Indonesia 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.
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 1.6 percent to 13,061 and S&P 500 futures lost 1.6 percent to 1,417.80. 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.
Benchmark crude for February delivery fell $1.03 to $89.10 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 $1.3199 from $1.3241 late Thursday in New York. The dollar fell to 83.92 yen from 84.42 yen.
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