A deal on the budget is needed to avoid the so-called "fiscal-cliff," a series of automatic tax hikes and spending cuts that are due to come into effect at the start of the year.
After a week of edging toward a compromise, President Barack Obama threatened Wednesday to veto a new plan floated by the speaker of the Republican-controlled Congress, John Boehner. That rattled initially investors, though some viewed the spat as mere posturing.
By midafternoon in Europe, Britain's FTSE 100 was down 0.1 percent to 5,958.71, perhaps reflecting weak retail numbers there. Germany's DAX fell fractionally to 7,668.14, while France's CAC-40 rose 0.1 percent to 3,668.89.
Stocks in Asia were also mixed. Japan's Nikkei 225 index fell 1.2 percent to close at 10,039.33, following a strong rally the day before. The Bank of Japan, as expected, announced at the end of a policy meeting that it was expanding its asset-purchase program by about 10 trillion yen ($119 billion) to shore up its flagging economy.
Hong Kong's Hang Seng rose 0.2 percent to 22,659.78. Australia's S&P/ASX 200 gained 0.4 percent to 4,634.10. Stocks in mainland China and Singapore rose while benchmarks in Taiwan, Indonesia and Thailand fell.
South Korea's Kospi rose 0.3 percent to 1,999.50, a day after the country elected Park Geun-hye as its first female president. She has pledged to curb the power of family-controlled business conglomerates but has warned against excessive regulations, Yonhap News Agency said.
Wall Street stocks were mixed, with the Dow Jones industrial index flat at 13,250.84, while the S&P 500 rose 0.1 percent to 1,437.99.
In broad terms, Obama wants to increase taxes on the rich, while Republicans want to cut government spending. They will both get their way if a compromise is not in place by Jan. 1, as Bush-era tax cuts expire and spending cuts kick in automatically.
But that would be a one-two punch to the economy that many economists fear will push the economy back into recession.
With two weeks to go before the end of the year, markets are "likely to become more nervous by the day," said Mitul Kotecha of Credit Agricole CIB in Hong Kong.
Still, there is hope that they will reach a deal, if not now, early next year. "The overall trend is of improving risk appetite, so there is an overall belief that there will be a resolution," Kotecha said. "The big issue is: how quickly will that come?"
Benchmark crude for February delivery fell 24 cents to $89.75 per barrel in electronic trading on the New York Mercantile Exchange, after an extremely strong session Wednesday due to data showing a surprise decline in inventories. The contract closed Wednesday at $89.98 a barrel, up $1.58, or 1.8 percent.
In currencies, the euro was about flat at $1.3243 from $1.3247 late Wednesday in New York. The dollar weakened slightly to 84.35 yen from 84.40 yen.
(Copyright 2012 by The Associated Press. All Rights Reserved.)