Markets calm despite looming fiscal cliff

Despite the recent worries, U.S. stocks have had a strong 2012, with the Dow up around 6 percent so far and the S&P 11.5 percent higher.

Developments over the U.S. budget will likely be one of the big issues in financial markets in 2013, especially in the early part, alongside Europe's ongoing efforts to contain its debt crisis and the state of the Chinese economy, now the world's second biggest.

Clearly, the full imposition of the "fiscal cliff" measures would hobble the U.S. economy that has shown some signs of late of a more sustainable economic recovery. Waning U.S. economic growth would have an impact worldwide.

Some economists predict the effects of the "fiscal cliff" could eventually throw the U.S. economy back into recession — although if the deadline passes, politicians still have a few weeks to keep the tax hikes and spending cuts at bay by repealing them retroactively once a deal is reached.

Still, the failure to adhere to the deadline following weeks of squabbling and procrastination could be view negatively by the major credit rating agencies and weigh on investor confidence going into 2013.

"I think the market reaction to that will be very negative. This means the U.S. will never be able to bring its house in order. And the deficit will continue to accumulate," said Francis Lun, managing director of Lyncean Holdings in Hong Kong. "No meaningful reform and no solution in sight. You can throw confidence out of the window."

Earlier in Asia, the picture was fairly subdued in those markets that were open — among others, markets in Japan, were closed for the New Year's holidays. After a stellar performance in December, Japan's Nikkei ended the year almost 23 percent higher.

Hong Kong's Hang Seng, trading for a half-day, closed marginally lower at 22,656.92, to also end the year nearly 23 percent higher.

Mainland Chinese stocks rose Monday after a private survey showed the country's manufacturing growth at its strongest level in 18 months in December. Australia's S&P/ASX 200 fell 0.5 percent to close at 4,648.90.

There was also a fairly calm atmosphere in other financial markets, with the euro down just 0.2 percent at $1.3190. Despite the endless debate over its future, the euro has actually ended the year modestly higher against the dollar.

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Sampson contributed from Bangkok.