AMSTERDAM World stocks slid Thursday as the eurozone fell into recession and hopes faded for a quick agreement among U.S. leaders not to hike taxes and cut government spending -- a potential double whammy which could derail the world's biggest economy.
President Barack Obama has said he is willing to extend current tax cuts for all but the richest 2 percent, but Congress opposes that. Unless they reach a compromise, across-the-board tax increases and spending reductions will take effect automatically in 2013 at a cost of about $800 billion. Economists say that could knock the U.S. economy back into recession.
Meanwhile, the European Union's statistics agency confirmed that the eurozone countries are in recession, with GDP contracting 0.1 percent in the third quarter from the previous three-month period.
European stocks fell in early trading. Britain's FTSE 100 lost 0.3 percent to 5,704.60 while Germany's DAX fell 0.5 percent to 7,063.42. France's CAC-40 shed 0.3 percent to 3,389.17.
After sharp falls Wednesday, U.S. stock futures rose fractionally ahead of the release of several manufacturing surveys that some analysts said could show a modest improvement in activity in November. Dow Jones industrial futures rose 0.2 percent to 12,563 and S&P 500 futures added 0.3 percent to 1,357.
Analysts at Credit Agricole CIB said in a market commentary that a "cautious tone" is likely to permeate trading, given the uncertainty over the situation in the U.S. Obama is expected to meet the top leaders of both political parties at the White House on Friday for discussions.
Asian indexes tumbled, though Japanese stocks rose thanks to a drop in the value of the yen, which helps the country's exporters.
Hong Kong's Hang Seng tumbled 1.6 percent to 21,108.93. South Korea's Kospi shed 1.2 percent to 1,870.72. Australia's S&P/ASX 200 fell 0.9 percent to 4,349.20. Benchmarks in Singapore, Taiwan and Thailand also fell.
In mainland China, the Shanghai Composite Index lost 1.2 percent to 2,030.29, the lowest close in more than a month. The Shenzhen Composite Index lost 1.6 percent to 805.91.
In Japan, the Nikkei 225 index rallied 1.9 percent to close at 8,829.72 due to the impact of a weaker yen, which fell after Prime Minister Yoshihiko Noda reportedly pledged to dissolve the parliament by Friday if the opposition agreed to key reforms. Parliamentary elections could be set for Dec. 16.
Investors "hope that there may be some more stimulatory policies as a result of that," said Peter Elston, strategist at Aberdeen Asset Management in Singapore.
Overall, many investors remain uneasy with the persistent weakness in the world's biggest economies and a lack of confidence, which discourages companies and households from spending despite stimulus programs by central banks.
"The concern that I have is that when economies were weak three years ago, governments were able to come to the rescue," Elston said. "They are not as able to provide support now because their balance sheets are a lot weaker than they were."
Benchmark oil for December delivery was down 9 cents to $86.23 in electronic trading on the New York Mercantile Exchange, after a sharp rise Wednesday after Israel bombed targets in the Gaza Strip.
In currencies, the euro rose to $1.2765 from $1.2745 late Wednesday in New York. The dollar jumped to 81.21 yen from 80.17 yen, its second rise of more than one percent in two days.
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