LONDON -- Financial markets were largely steady in holiday-thinned trading Monday though concerns remain over the progress of U.S. budget discussions and the future of the economic reform program in Italy.
For weeks, the discussions between the White House and Congress over a budget deal have been the main driver in markets. If a deal isn't agreed to by the start of 2013, automatic spending cuts and tax increases worth hundreds of billions of dollars will be imposed -- which many economists think could push the U.S. economy back into recession.
The prevailing view has been that a deal would be agreed to in time but as the deadline nears there are growing doubts over whether the U.S. will be able to avoid the so-called "fiscal cliff."
"The reality is given that the U.S. government is now closed for the holiday break the likelihood of anything other than soothing procrastination is highly unlikely much before the Jan. 1 deadline," said Michael Hewson, senior market analyst at CMC Markets.
Doubts over the progress of discussions prompted a fairly sizeable sell-off last Friday though many analysts still think there will be agreement on some sort of short-term measures.
"Even if this stopgap measure is implemented it may not be enough to prevent unwanted volatility in equity markets going into 2013 as investors try and assess the adverse impact on the U.S. economy," said Neil MacKinnon, global macro strategist at VTB Capital.
Most markets across Europe are only open for half a day and will only re-open again on Thursday. German markets are closed for Christmas Eve.
With around an hour of trading to go, Britain's FTSE 100 index of leading British shares was up 0.2 percent at 5,952 while the CAC-40 in France was down an equivalent rate at 3,655.
Wall Street was poised for more marked falls at the open in what will also be a holiday-shortened trading day -- both Dow futures and the broader S&P 500 futures were down 0.4 percent.
As well as monitoring developments in the U.S. over the coming days, investors will be keeping a close watch on what's going on in Italy ahead of a general election in February.
Over the weekend, outgoing Prime Minister Mario Monti indicated that he would be willing to return to the role if pro-reform parties back him.
Over the past year or so, Monti and his technocratic government have won plaudits in the markets for their economic reforms and efforts to get a grip on the country's borrowing. Italy has the second-highest debt burden among the 17 EU countries that use the euro. Only Greece's is higher.
Earlier in Asia, Hong Kong's Hang Seng, closed up 0.1 percent at 22,531.51 while South Korea's Kospi rose less than 0.1 percent to 1,981.82. Japanese markets were closed for the Emperor's birthday holiday.
Other financial markets were subdued too. In the currency markets, the euro was up 0.2 percent at $1.3227 while the benchmark New York oil price was down 3 cents at $88.63 a barrel.