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European stocks slide as US fiscal deal hopes ebb

European stock markets sank on Friday, mirroring losses in Asia, as sentiment was rocked by unsuccessful talks to avert ‘fiscal cliff’ measures that threaten to push the US back into recession.

Traders also digested official data showing that the UK economy grew by a downwardly-revised 0.9 per cent in the third quarter of the year.

At close in Europe, London’s FTSE 100 index of leading companies fell 0.31 per cent to 5,939.99 points, Frankfurt’s DAX 30 dropped 0.47 per cent to 7,636.23 points, while in Paris, the CAC 40 dipped 0.15 per cent at 3,661.40 points.

Milan’s FTSE Mib index regained some ground, ending the day 0.40 per cent lower to 16,223.36 points as Italian lawmakers voted on a 2013 Budget that triggered the resignation of Prime Minister Mario Monti.

“The world hasn’t ended – but hopes for a deal to avert the US fiscal cliff before the year-end may soon come to an end after the latest developments in Washington,” said ETX Capital strategist Ishaq Siddiqi.

Saxo Bank analyst Andrea Tueni said: “It’s a unusual session, dominated by US Budget questions which remain the big question this end of the year.”

Wall Street moved sharply lower Friday on the deadlock in Washington, with the Dow Jones Industrial Average off 1.37 per cent, the tech-heavy Nasdaq down 1.47 per cent and the S&P 500 losing 1.42 per cent.

Global share prices have fallen on fresh concerns over the fiscal cliff of automatic tax hikes and spending cuts that are due to kick in on January 1 – and could send the US economy spinning back into recession.

On Thursday, US House of Representatives Speaker John Boehner scrapped a vote on a bill that would have extended tax cuts for Americans earning less than $1 million (£758,200) even if a deal could not be struck.

The move, which he described as his ‘Plan B’, was dropped because he did not have enough support. Boehner said his party would recess until after Christmas.

The measure had been blasted by President Barack Obama’s Democrats as a diversionary tactic that would never have passed in the Senate, where they hold a majority.

Now both parties must come up with a Budget that will cut the country’s deficit with less painful measures before the start of January.

In reaction in Asian trade, Hong Kong shares dropped 0.68 per cent, Tokyo fell 0.99 per cent, Seoul shed 0.95 per cent and Sydney was 0.23 per cent lower.

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