Investing.com - Asian stock markets edged lower in holiday-thinned trade on Monday, as growing uncertainty surrounding talks between U.S. lawmakers to avoid the looming fiscal cliff deadline weighed on demand for riskier assets.
Most Asian markets came off the lows of the session after a report released earlier confirmed that manufacturing activity in China expanded at the fastest pace in 19 months in December.
During late Asian trade, Hong Kong's Hang Seng Index ended down 0.2%, while Australia's ASX/200 Index settled 0.5% lower, as both markets traded in a holiday-shortened session ahead of the New Year's holiday break.
Financial markets in Japan remained closed for a four-day holiday break, with trading due to reopen on Friday. The Nikkei finished 2012 with strong gains, up 22.9% for the year.
Market players remained focused on developments surrounding the fiscal cliff in the U.S., approximately USD600 billion in automatic tax hikes and spending cuts due to come into effect on January 1.
U.S. President Barack Obama met with congressional leaders at the White House Friday afternoon, but both sides failed to reach an agreement ahead of the looming year-end deadline.
Senate Majority Leader Harry Reid said the Senate would resume sitting on Monday to continue discussions, but there were still significant differences between the two sides.
Without a deal, the U.S. could fall back into recession and drag much of the world down with it.
Shares in Hong Kong swung between small gains and losses, as many investors stuck to the sidelines in a holiday-shortened session.
A report from HSBC released earlier confirmed that manufacturing activity in China expanded at the fastest pace since May 2011 in December. The final version of China's HSBC Purchasing Managers Index rose to 51.5 in December from a final reading of 50.5 in November.
Index heavyweight HSBC declined 0.8%. Shares of Europe's largest lender command a 15% weighting on the Hong Kong benchmark, making it the single largest constituent on the index.
For the year, the Hang Seng Index advanced nearly 23%.
Elsewhere, in Australia, the benchmark ASX/200 Index edged lower in holiday-thinned trade, as investors continued to eye U.S. budget talks.
A lackluster performance from global miners weighed on the market, with Rio Tinto and BHP Billiton both losing 0.8% and Newcrest Mining down 1.5%.
For 2012, the ASX/200 rose 14.6%.
In Europe, stocks were set to open lower in holiday-thinned trade, as worries that U.S. lawmakers will be unable to agree on a way to avert a fiscal crisis weighed on market sentiment.
Markets in Germany were to remain closed for New Year's Eve, while U.S. equity markets will close early at 13:30EST (18:30 GMT).
London's FTSE 100 pointed to a loss of 0.5% at the open, while France's CAC lost 0.6%
Trading volumes are expected to remain light because many investors have closed books to lock in profit before the end of the year, reducing liquidity in the market and increasing the volatility.
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