London - European stock markets dropped and the euro fell versus the dollar on Friday, the final trading day of the year for the Frankfurt index, which soared in 2012 despite eurozone and US economic strains.
Equities were downbeat in the absence of a deal to avert the US fiscal cliff of sharp tax hikes and spending cuts, analysts said, after staging a sustained rally in late 2012 on eurozone debt progress and fresh stimulus moves by the US Federal Reserve.
In late morning trade on Friday, London's FTSE 100 index of top companies was down 0.01% at 5 953.59 points and Frankfurt's DAX 30 fell 0.29% to 7 633.45 points. In Paris, the CAC 40 slid 0.62% to 3 651.61 points, after earlier reaching its highest level for the year.
French national statistics agency INSEE on Friday revised its figure for the country's third quarter economic growth down from 0.2% to 0.1%, making the government's full-year target harder to reach.
While the Frankfurt market was trading for the last time in 2012 on Friday, London and Paris will stage half-sessions on Monday, the final day of the year.
In foreign exchange deals Friday, the euro fell to $1.3186 from $1.3235 late in New York on Thursday. Gold prices rose to $1 661.10 an ounce on the London Bullion Market from $1 655.50 late on Thursday.
"The fiscal cliff remains at the centre of global focus as the ongoing crisis continues to provide direction for much of the major indices," said analysts at trading company Alpari.
US politicians have until Tuesday to come up with a deficit-cutting budget that is less painful than the steep tax hikes and swingeing spending cuts that most economists say will tip the country into recession in 2013.
With time counting down, Republicans and Democrats are blaming each other for the lack of progress on a deal, with Senate Majority Leader Harry Reid saying: "I have to be very honest, I don't know time-wise how it can happen now."
President Barack Obama cut short his Christmas holiday to Hawaii to host top congressional leaders on Friday in a last-ditch bid to find an agreement.
Dealers seemed to take heart from reports that the House of Representatives would reconvene on Sunday, raising hopes of an 11th-hour compromise.
"Unable to reach an agreement... US lawmakers will attempt to meet again in a final attempt to ink out a deal to avert the crisis but markets are not holding their breath," said Ishaq Siddiqi, market strategist at ETX Capital trading group.
"With low volumes (in stock market trade) due to the seasonal break, activity is likely to be subdued for the course of the session and traders are again unwinding positions before fingers are burnt."
Despite Friday's losses, Europe's main stock markets have made some impressive gains in 2012, with Frankfurt's DAX 30 surging by almost 30% in value.
Across in Asia, Tokyo's main index on Friday closed at their highest point since last year's quake-tsunami, ending 2012 up almost 23% on-year as Japan's new government pledges to turn around the long-suffering economy.
Elsewhere on Friday, Italian borrowing rates rose slightly in a five to ten-year debt auction, as the government raised close to €6.0bn ($7.9 billion) in its last bond sale of 2012.
The Treasury raised €2.87bn in five-year bonds, at a rate of 3.26% compared with 3.23% at the last comparable operation in November, and €3.0bn in 10-year bonds at 4.48%, up from 4.45%, the Bank of Italy said.