The local sharemarket's stellar finish to the year threatens to be curtailed by faltering US political efforts to avoid the"fiscal cliff"of$US600 billion tax rises and spending cuts automatically coming into effect on January 1.
Despite the jitters,futures trading points to the ASX200 opening 25 points(0.5 per cent)higher in today's shortened trading session.
On Wall Street on Friday night,stocks fell 120 points(0.9 per cent)after Republican leaders in the US House of Representatives cancelled a vote on averting the austerity measures.
The Republicans'so-called Plan B compromise would have imposed tax increases on those earning more than$US1 million a year,compared with President Barack Obama's compromise cut-off point of$US400,000.
"It will be interesting to see how things pan out,"market analyst Cameron Peacock said.
"Everyone was hoping a deal would be done on Friday and no one wanted to see it drag into the Christmas week."
Avoiding the fiscal cliff is seen as crucial to the recovering US economy:the bipartisan Congressional Budget Office estimates the measures would knock 2 per cent off the nation's GDP if fully implemented.
While a pre-New Year agreement is seen as unlikely--Mr Obama has left for Hawaii for Christmas--market watchers expect the parties to reach a compromise in the same way they have in other 11th-hour financial crises.
"It's noteworthy we saw similar setbacks during the debt ceiling and payroll tax cut extension negotiations of 2011,only ultimately to see a deal agreed to,"AMP Capital Markets chief economist Shane Oliver said.
Dr Oliver said the Republican proposal would not have passed the Democrats-controlled Senate or the White House anyway.
"The demise of Plan B may turn out to be a positive,to the extent that it will force the Republican leadership back into discussion with Obama,"he said.
Dr Oliver said even if there were no resolution by the end of the year,a January compromise was likely to be reached because neither side want to be blamed for the US economy reverting to recession.Mr Peacock concurred:"I don't think the world is going to end on January 1 if no deal is reached,but it will drag out longer than people thought."
The US fiscal uncertainties would also help sustain the strength of the Australian dollar against the US dollar,if only by default,as investors sought safe havens from the greenback.
One reason for the futures pointing to a stronger local start is that Wall Street on Friday was forecast to lose 180 points in reaction to the news,but outperformed expectations by falling only 120 points.
Having traded as much as 20 points higher,the ASX200 on Friday closed 10.5 points lower at 4623 after news of the US impasse filtered through.
The market is still 14 per cent higher for the year,having also shrugged off news the federal government had abandoned expectations of a budget surplus.
