Markets fear the United States could slip into recession if $600 billion in tax hikes and spending cuts are allowed to start taking effect in January. The White House and Congress have yet to agree on a long-term deficit reduction plan.

"Investors everywhere are focused on what is happening here related to the 'fiscal cliff' and the risk that nothing will happen," said Gail Dudack, chief investment strategist at Dudack Research Group in New York.

"From what I have seen, there is a consensus that something will happen. Maybe if it is not ideal, something will happen."

Data this week showed U.S. manufacturing contracted in November, its worst month in more than three years.

The Dow Jones industrial average .DJI edged up 4.23 points, or 0.03 percent, at 12,969.83. The Standard & Poor's 500 Index .SPX was off 1.61 points, or 0.11 percent, to 1,407.85. The Nasdaq Composite Index .IXIC slipped 7.47 points, or 0.25 percent, to 2,994.73.

World shares as measured by MSCI's all-country equity index .MIWD00000PUS were flat.

In an interview with Bloomberg Television, President Barack Obama rejected a Republican proposal to resolve the crisis as "still out of balance.

"We have more of the same and what that really means is that you see very public negotiations that seem to be going nowhere," said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey.

Headlines about the back-and-forth proposals by Republicans and Democrats have monopolized attention on Wall Street, though many investors still expect a deal before the year-end deadline, which could trigger a rally.

The euro, however, approached a seven-week high above $1.31, boosted by a Greek debt buy-back plan and encouraging news from Portugal and Spain. Greece's buy-back is a crucial part of a deal reached last week by international lenders to cut the country's debt and needs to be completed before the IMF can release its emergency aid.

"There's some optimism around the Greek buy-back," said Eric Viloria, senior currency strategist at Forex.com in New York. "That's seen as sort of the last major risk event for some time.

"Technically, it looks like (the euro) does have some more room to the upside."

U.S. government bond prices were slightly higher, but most investors kept to the sidelines in the absence of progress on the budget negotiations. The benchmark 10-year Treasury was up 4/32 to yield 1.6062 percent.

"When things are drifting like this, we see some money gravitating to investment-grade corporate bonds," said Jim Vogel, interest rate strategist with FTN Financial in Memphis, Tennessee.

Lingering worries about the world economy, though, pushed oil and gold lower. U.S. crude oil settled down 59 cents at $88.50 a barrel, and gold fell about 1 percent to its lowest in nearly a month after prices broke below key support levels.