Markets flat in thin holiday trading

LONDON -- Financial markets around the world were largely steady in thin holiday trading Monday, although concerns remain over the progress of U.S. budget discussions and the future of the economic reform program in Italy.

U.S. stock index futures were pointing to a lower open on Wall Street, where trading will end at 1 p.m. ET.

For weeks, 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 say could push the U.S. economy back into recession.

The prevailing view has been that a deal would be agreed to in time to avoid the "fiscal cliff" but as the deadline nears there are growing doubts.

"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 selloff Friday.

"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 half a day and will re-open again Thursday. German markets are closed for Christmas Eve.

Britain's FTSE 100 index of leading British shares was up 0.24% while the CAC-40 in France was down the same 0.24%.

As well as monitoring developments in the U.S. 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 he would be willing to return 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% at 22,541.18 while South Korea's Kospi rose less than 0.1% 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% at $1.3227 while the benchmark New York oil price was down 22 cents at $88.44 a barrel.

Associated Press