Strong Asian gains overshadowed by U.S. fiscal cliff

SYDNEY (Reuters) - Several major Asian stock indexes closed on Monday with the strongest annual gains in years, but these were overshadowed by the lack of progress in talks to avert the looming U.S. "fiscal cliff".

Australian shares ended up 14.6 percent in 2012, the best yearly gain since the recovery of 2009. On Monday the benchmark S&P/ASX 200 index <.axjo> fell 22.4 points to 4,648.9, according to the latest data. It rose 0.5 percent to 4,671.3 on Friday, its highest close since June 2, 2011.

Hong Kong shares ended their best year since 2009 hovering near 18-month closing highs on Monday. The Hang Seng Index <.hsi> closed flat at 22,656.9 on the day, ending the session up 22.9 percent on the year, near its highest close since early July 2011.

The Straits Times Index (STI) <.ftsti> ended down 0.8 percent at 3,167.78 points, but it has gained 20.6 percent since the start of the year, its best yearly gain since 2009, when it surged 64 percent.

Monday's strong closes came during New Year market holidays in Japan, South Korea, Taiwan, Indonesia, Thailand, the Philippines and Vietnam, with half-day trading in Australia, New Zealand, Hong Kong and Singapore.

Japan's Nikkei 225 <.n225> ended 2012 trading on Friday up 23 percent, Seoul's KOSPI 200 <.ks11> closed up 9.4 percent on the year, and Taiwan was up 9 percent.

The gains drove the MSCI Asia Pacific ex-Japan's <.miwd00000pus> to a 12.6 percent rise this year.

Investors fear these gains may be short-lived as the U.S. Congress and the White House struggle to find compromises that could avert the fiscal cliff - harsh tax rises and spending cuts that take effect from New Year's Day.

S&P 500 futures were up 3.7 points, or 0.3 percent, to 1,387.70 in electronic trading at 0500GMT, but traders said the rise in the futures market did not necessarily bode well for a Wall Street rally on Monday after the cash market and futures markets closed far apart on Friday.

"Hard to predict how or when there will be a deal, but I believe investors will show their displeasure tomorrow by selling stocks if there is no deal," said Mohannad Aama, managing director at Beam Capital Management, an investment advisory firm in New York.

In Washington, Senate Majority Leader Harry Reid said the Senate would resume sitting at 11 a.m. Washington time on Monday (1600 GMT), to continue discussions, but there were still significant differences between the two sides.

The U.S. dollar last stood at 85.78 yen, having retreated from Friday's high of 86.64 yen, which was the greenback's strongest level versus the Japanese currency since August 2010.

As the year draws to a close, the dollar is up about 11.9 percent against the yen, putting it on track for its biggest percentage gain versus the Japanese currency since 2005.

The euro inched up 0.14 percent to 1.323 on Monday. An agreement on the U.S. budget would be viewed as positive for riskier currencies such as the euro and Australian dollar, while a deadlock is deemed positive for the haven and highly liquid dollar.

The Australian dollar was around $1.0383, from $1.0375 in late New York on Friday. It touched a one-month low of $1.0345 last week, but is on track to finish up 1.4 percent this year.

The Aussie dollar was supported by a bounce in iron ore prices <.io62-cni>, which hit eight-month highs at $139.40. Prices are now up 61 percent from the lows hit in September.

Gold was $1661.34 an ounce by 0525 GMT, up around 6 percent for the year and is on track for a 12th consecutive year of gains on rock-bottom interest rates, concerns over the financial stability of the euro zone, and diversification into bullion by central banks.

U.S. crude futures slipped on Monday for a third consecutive session on the budget crisis, with failure to reach a solution seen likely to cause a large drop in fuel consumption.

U.S. crude for February delivery was $90.83 a barrel by 0525 GMT. Front-month prices are on track to post an 8 percent fall in 2012, after three consecutive annual gains. Brent crude slipped 23 cents to $110.39 a barrel, but is set to post a 2.8 percent year-on-year increase in 2012, up for a fourth consecutive year.

(Reporting By Reuters Markets Team; Writing by Eric Meijer; Editing by Matt Driskill)

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14 Solutions to Your New Year’s Midnight Kiss

Find a Baby

There’s got to be one crawling around somewhere. What’s cuter than kissing a baby’s fat cheek? Photo by Win McNamee/Getty Images

Click here to view this gallery.

[More from Mashable: Here’s a Depressing Look at Man’s Impact on Earth]

Do you find yourself in a panic every New Year’s Eve because everyone’s counting down and Billy Crystal has yet to explain all of the reasons why he’s madly in love with you?

No? Oh okay — me neither.

[More from Mashable: Watch the Scariest Skiing Lesson of All Time]

But the final holiday of the year can put a lot of unnecessary pressure on people. We want to end and begin each year with a bang — this often means the perfect outfit, an amazing soiree and the midnight kiss that will sweep you off your feet.

Instead of starting 2013 in a state of panic, then promising to be better later, enjoy New Year’s Eve and stop worrying about a silly superstition. We’ve come up with a couple solutions to the big smooch at the end of the night.

Photo by Ian Gavan/Getty Images

This story originally published on Mashable here.

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Matthew & Camila McConaughey Name Their Son Livingston

12/29/2012 at 09:15 PM EST

Camila and Matthew McConaughey

Gary Miller/FilmMagic

Matthew McConaughey has spilled the beans about his new baby!

"Camila gave birth to our third child yesterday morning. Our son, Livingston Alves McConaughey, was born at 7:43 a.m. on 12.28.12," he wrote on his Whosay page Saturday night.

"He greeted the world at 9 lbs., and 21 inches. Bless up and thank you for your well wishes."

Camila, 29, and her actor husband, 43, welcomed their third child in Austin, Texas, Friday, PEOPLE previously confirmed.

The couple – also parents to Vida, almost 3, and Levi, 4 – announced the pregnancy in July, just one month after they wed in Texas.

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Kenya hospital imprisons new mothers with no money

NAIROBI, Kenya (AP) — The director of the Pumwani Maternity Hospital, located in a hardscrabble neighborhood of downtown Nairobi, freely acknowledges what he's accused of: detaining mothers who can't pay their bills. Lazarus Omondi says it's the only way he can keep his medical center running.

Two mothers who live in a mud-wall and tin-roof slum a short walk from the maternity hospital, which is affiliated with the Nairobi City Council, told The Associated Press that Pumwani wouldn't let them leave after delivering their babies. The bills the mothers couldn't afford were $60 and $160. Guards would beat mothers with sticks who tried to leave without paying, one of the women said.

Now, a New York-based group has filed a lawsuit on the women's behalf in hopes of forcing Pumwani to stop the practice, a practice Omondi is candid about.

"We hold you and squeeze you until we get what we can get. We must be self-sufficient," Omondi said in an interview in his hospital office. "The hospital must get money to pay electricity, to pay water. We must pay our doctors and our workers."

"They stay there until they pay. They must pay," he said of the 350 mothers who give birth each week on average. "If you don't pay the hospital will collapse."

The Center for Reproductive Rights, which filed the suit this month in the High Court of Kenya, says detaining women for not paying is illegal. Pumwani is associated with the Nairobi City Council, one reason it might be able to get away with such practices, and the patients are among Nairobi's poorest with hardly anyone to stand up for them.

Maimouna Awuor was an impoverished mother of four when she was to give birth to her fifth in October 2010. Like many who live in Nairobi's slums, Awuor performs odd jobs in the hopes of earning enough money to feed her kids that day. Awuor, who is named in the lawsuit, says she had saved $12 and hoped to go to a lower-cost clinic but was turned away and sent to Pumwani. After giving birth, she couldn't pay the $60 bill, and was held with what she believes was about 60 other women and their infants.

"We were sleeping three to a bed, sometimes four," she said. "They abuse you, they call you names," she said of the hospital staff.

She said saw some women tried to flee but they were beaten by the guards and turned back. While her husband worked at a faraway refugee camp, Awuor's 9-year-old daughter took care of her siblings. A friend helped feed them, she said, while the children stayed in the family's 50-square-foot shack, where rent is $18 a month. She says she was released after 20 days after Nairobi's mayor paid her bill. Politicians in Kenya in general are expected to give out money and get a budget to do so.

A second mother named in the lawsuit, Margaret Anyoso, says she was locked up in Pumwani for six days in 2010 because she could not pay her $160 bill. Her pregnancy was complicated by a punctured bladder and heavy bleeding.

"I did not see my child until the sixth day after the surgery. The hospital staff were keeping her away from me and it was only when I caused a scene that they brought her to me," said Anyoso, a vegetable seller and a single mother with five children who makes $5 on a good day.

Anyoso said she didn't have clothes for her child so she wrapped her in a blood-stained blouse. She was released after relatives paid the bill.

One woman says she was detained for nine months and was released only after going on a hunger strike. The Center for Reproductive Rights says other hospitals also detain non-paying patients.

Judy Okal, the acting Africa director for the Center for Reproductive Rights, said her group filed the lawsuit so all Kenyan women, regardless of socio-economic status, are able to receive health care without fear of imprisonment. The hospital, the attorney general, the City Council of Nairobi and two government ministries are named in the suit.

___

Associated Press reporter Tom Odula contributed to this report.

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Wall Street Week Ahead: Cliff may be a fear, but debt ceiling much scarier

(Reuters) - Investors fearing a stock market plunge - if the United States tumbles off the "fiscal cliff" next week - may want to relax.

But they should be scared if a few weeks later, Washington fails to reach a deal to increase the nation's debt ceiling because that raises the threat of a default, another credit downgrade and a panic in the financial markets.

Market strategists say that while falling off the cliff for any lengthy period - which would lead to automatic tax hikes and stiff cuts in government spending - would badly hurt both consumer and business confidence, it would take some time for the U.S. economy to slide into recession. In the meantime, there would be plenty of chances for lawmakers to make amends by reversing some of the effects.

That has been reflected in a U.S. stock market that has still not shown signs of melting down. Instead, it has drifted lower and become more volatile.

In some ways, that has let Washington off the hook. In the past, a plunge in stock prices forced the hand of Congress, such as in the middle of the financial crisis in 2008.

"If this thing continues for a bit longer and the result is you get a U.S. debt downgrade ... the risk is not that you lose two-and-a-half percent, the risk is that you lose ten and a half," said Jonathan Golub, chief U.S. equity strategist at UBS Equity Research, in New York.

U.S. Treasury Secretary Tim Geithner said this week that the United States will technically reach its debt limit at the end of the year.

INVESTORS WARY OF JANUARY

The White House has said it will not negotiate the debt ceiling as in 2011, when the fight over what was once a procedural matter preceded the first-ever downgrade of the U.S. credit rating. But it may be forced into such a battle again. A repeat of that war is most worrisome for markets.

Markets posted several days of sharp losses in the period surrounding the debt ceiling fight in 2011. Even after a bill to increase the ceiling passed, stocks plunged in what was seen as a vote of "no confidence" in Washington's ability to function, considering how close lawmakers came to a default.

Credit ratings agency Standard & Poor's lowered the U.S. sovereign rating to double-A-plus, citing Washington's legislative problems as one reason for the downgrade from triple-A status. The benchmark S&P 500 dropped 16 percent in a four-week period ending August 21, 2011.

"I think there will be a tremendous fight between Democrats and Republicans about the debt ceiling," said Jon Najarian, a co-founder of online brokerage TradeMonster.com, in Chicago.

"I think that is the biggest risk to the downside in January for the market and the U.S. economy."

There are some signs in the options market that investors are starting to eye the January period with more wariness. The CBOE Volatility Index, or the VIX, the market's preferred indicator of anxiety, has remained at relatively low levels throughout this process, though on Thursday it edged above 20 for the first time since July.

More notable is the action in VIX futures markets, which shows a sharper increase in expected volatility in January than in later-dated contracts. January VIX futures are up nearly 23 percent in the last seven trading days, compared with a 13 percent increase in March futures and an 8 percent increase in May futures. That's a sign of increasing near-term worry among market participants.

The CBOE Volatility Index closed on Friday at 22.72, gaining nearly 17 percent to end at its highest level since June as details emerged of a meeting on Friday afternoon of President Barack Obama with Senate and House leaders from both parties where the president offered proposals similar to those already rejected by Republicans. Stocks slid in late trading and equity futures continued that slide after cash markets closed.

"I was stunned Obama didn't have another plan, and that's absolutely why we sold off," said Mike Shea, a managing partner and trader at Direct Access Partners LLC, in New York.

Obama offered hope for a last-minute agreement to avoid the fiscal cliff after a meeting with congressional leaders, although he scolded Congress for leaving the problem unresolved until the 11th hour.

"The hour for immediate action is here," he told reporters at a White House briefing. "I'm modestly optimistic that an agreement can be achieved."

The U.S. House of Representatives is set to convene on Sunday and continue working through the New Year's Day holiday. Obama has proposed maintaining current tax rates for all but the highest earners.

Consumers don't appear at all traumatized by the fiscal cliff talks, as yet. Helping to bolster consumer confidence has been a continued recovery in the housing market and growth in the labor market, albeit slow.

The latest take on employment will be out next Friday, when the U.S. Labor Department's non-farm payrolls report is expected to show jobs growth of 145,000 for December, in line with recent growth.

Consumers will see their paychecks affected if lawmakers cannot broker a deal and tax rates rise, but the effect on spending is likely to be gradual.

PLAYING DEFENSE

Options strategists have noted an increase in positions to guard against weakness in defense stocks such as General Dynamics because those stocks would be affected by spending cuts set for that sector. Notably, though, the PHLX Defense Index is less than 1 percent away from an all-time high reached on December 20.

This underscores the view taken by most investors and strategists: One way or another, Washington will come to an agreement to offset some effects of the cliff. The result will not be entirely satisfying, but it will be enough to satisfy investors.

"Expectations are pretty low at this point, and yet the equity market hasn't reacted," said Carmine Grigoli, chief U.S. investment strategist at Mizuho Securities USA, in New York. "You're not going to see the markets react to anything with more than a 5 (percent) to 7 percent correction."

Save for a brief 3.6 percent drop in equity futures late on Thursday evening last week after House Speaker John Boehner had to cancel a scheduled vote on a tax-hike bill due to lack of Republican support, markets have not shown the same kind of volatility as in 2008 or 2011.

A gradual decline remains possible, Golub said, if business and consumer confidence continues to take a hit on the back of fiscal cliff worries. The Conference Board's measure of consumer confidence fell sharply in December, a drop blamed in part on the fiscal issues.

"If Congress came out and said that everything is off the table, yeah, that would be a short-term shock to the market, but that's not likely," said Richard Weiss, a Mountain View, California-based senior money manager at American Century Investments.

"Things will be resolved, just maybe not on a good time table. All else being equal, we see any further decline as a buying opportunity."

(Wall St Week Ahead runs every Friday. Questions or comments on this column can be emailed to: david.gaffen(at)thomsonreuters.com)

(Reporting by Edward Krudy and Ryan Vlastelica in New York and Doris Frankel in Chicago; Writing by David Gaffen; Editing by Martin Howell, Steve Orlofsky and Jan Paschal)

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Kabul Refugee Camps Again Feel Winter’s Deadly Bite

Vikram Singh for The New York Times

Rahima, center, a 24-year-old war widow from Helmand Province, with her children in the Nasaji Bagrami camp in Kabul.

KABUL, Afghanistan — The snow that fell on a refugee camp in Kabul last week left thick powder piled voluptuously on the sagging roofs of huts and skinny tree branches, turning the squalor into a winter wonderland. The mistake of a toddler named Janan was to play in it.

By nightfall Thursday, Janan, 3, was sick. On Friday, he never woke up.

He became the first known victim to freeze to death this winter in the mud and tarpaulin warrens of Kabul’s 44 refugee camps, where more than 100 children died of cold last winter.

His father, Taj Mohammad, 32, fears Janan may not be the last. “I am worried that more of my children will die,” he said.

When the children died here last winter, the question was, how could this happen in the capital city, home to 2,000 aid groups, recipient of $58 billion in development aid and at least $3.5 billion in humanitarian aid over the past 10 years?

The question this winter is, how could it happen again?

The answer appears to be a combination of stubbornness, by the Afghan government and the refugees themselves; inadequate deliveries of aid as winter sets in; and, in some cases, desperate families who sold their winter clothes and blankets in the summer to get food.

Last winter, after news reports drew attention to the deaths, aid groups, individuals and the American military rushed in with blankets and warm clothing, charcoal and firewood.

The United Nations organized the aid to try to get supplies where they were needed most.

In a report in November, the organization’s Office for the Coordination of Humanitarian Affairs said that distribution of fuel, cold-weather clothing, blankets and tarpaulins would begin Dec. 9 and continue through January, although the agency warned that firewood supplies for February had not yet been financed by donor countries.

Despite the preparations, matters rapidly took a turn for the worse the first time that protracted subfreezing temperatures set in with a snowstorm on Thursday and Friday.

In visits on Saturday to two camps that were the worst hit last January and February, Charahi Qambar and Nasaji Bagrami, residents were clearly ill prepared for the conditions around them now.

Small boys and girls ran through the muddy ice and snow in open sandals, flip-flops and even just barefoot. While here and there a child had a donated coat or sweater, they were the exception. Some adult men were better clothed, often with donated warm clothing, but few had hats, gloves or warm boots.

“I fear for the future,” said Mohammad Yousef, the manager of Aschiana, one of the few refugee groups working in the Kabul camps. “This is only the start of the cold weather.”

Abdul Wakil, 8, recounted what had happened to his little brother Janan at the Charahi Qambar camp on the western side of the capital. “He was playing in the cold and snow,” Abdul Wakil said, shivering in a thin cotton shirt and trousers, a pair of toeless socks poking out of the front of his sandals, his only footwear. “Then he got sick and got a fever and died.”

His father, Mr. Mohammad, filled in the blanks. They brought the 3-year-old into their mud hut, but its roof was leaking and they were out of fuel. “We couldn’t get him warm again,” he said. “We were just wrapping ourselves in our blankets, it was all we could do.” They had received an aid distribution of charcoal 15 days earlier, but it had run out by then, he said.

Now the family, with six other young children, has a bit more fuel, donated by friends after Janan’s death: a sack of sawdust donated by a carpenter, some roof poles and pieces of dried shrubs. Their only food is some bread and potatoes. Only a couple of his children have warm clothing; the rest are in rags. “That’s all they have,” he said, “they have nothing else to wear.”

“There are 900 families here, and every family has 10 to 15 children,” said Najibullah, an Aschiana worker at the Charahi Qambar camp, the biggest in Kabul. Distributions of clothing mostly came after the worst of last year’s winter weather. “When the NGOs came, they gave out one jacket per house.”

United Nations officials could not immediately be reached to discuss why supplies are apparently still so short in the camps.

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Facebook’s SnapChat Intimidator Was Great for SnapChat’s Business

This probably isn’t the outcome Facebook was hoping for. After Facebook created Poke, its very obvious SnapChat intimidator, the rival app saw a big boost in numbers. 

RELATED: Facebook’s SnapChat-Style Sexting App Is Called Poke (Seriously)

The people over at Bloomberg Businessweek looked at the hard numbers and concluded (with charts!) that SnapChat saw a huge uptick in attention after Facebook created Poke. What we initially thought was a clone war was not meant to be. Facebook helped SnapChat rocket to the top of the app charts. SnapChat, to its credit, was ready for the challenge as soon as the gauntlet was laid down by Facebook. SnapChat’s CEO had an Apple-IBM inspired response to Poke’s existence: he told The Verge, “Welcome, Facebook. Seriously.”

RELATED: When SnapChat Videos Don’t Disappear

It was clear from the start that the big boys in blue were big fans of the independent creation: Mark Zuckerberg himself helped code the copycat. But just because the app was touched by the hand of Zuck doesn’t necessarily mean success is guaranteed. Poke’s greatest success so far is helping royally piss off Zuckerberg’s sister. Whether or not Poke, or SnapChat for that matter, is a long-term success remains to be seen. We need to watch the success theater play out before our eyes. 

RELATED: Facebook to Launch Its Own SnapChat as Social-Network Clone Wars Live on

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Matthew McConaughey & Wife Camila Welcome Baby No. 3

By Elizabeth Leonard

12/28/2012 at 06:10 PM EST

Camila and Matthew McConaughey

Gary Miller/FilmMagic

It's a very merry holiday week for Matthew McConaughey and his wife Camila.

The couple welcomed their third child together in Austin, Texas, on Friday, sources confirm to PEOPLE.

The pair, who are also parents to Vida, who turns 3 next month, and Levi, 4, announced the pregnancy just one month after their June nuptials in Texas.

Camila, 29, joked that even as she put on pregnancy pounds, her actor husband, 43, was losing weight – dramatically – for The Dallas Buyers Club, in which he plays the real-life Ron Woodruff, who contracted HIV.

"We have gone the complete opposite direction eating wise, but we're navigating it," she said last summer. "But I don't really have cravings yet."

McConaughey's latest movie, Mud, will be released April. 26,

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Kenya hospital imprisons new mothers with no money

NAIROBI, Kenya (AP) — The director of the Pumwani Maternity Hospital, located in a hardscrabble neighborhood of downtown Nairobi, freely acknowledges what he's accused of: detaining mothers who can't pay their bills. Lazarus Omondi says it's the only way he can keep his medical center running.

Two mothers who live in a mud-wall and tin-roof slum a short walk from the maternity hospital, which is affiliated with the Nairobi City Council, told The Associated Press that Pumwani wouldn't let them leave after delivering their babies. The bills the mothers couldn't afford were $60 and $160. Guards would beat mothers with sticks who tried to leave without paying, one of the women said.

Now, a New York-based group has filed a lawsuit on the women's behalf in hopes of forcing Pumwani to stop the practice, a practice Omondi is candid about.

"We hold you and squeeze you until we get what we can get. We must be self-sufficient," Omondi said in an interview in his hospital office. "The hospital must get money to pay electricity, to pay water. We must pay our doctors and our workers."

"They stay there until they pay. They must pay," he said of the 350 mothers who give birth each week on average. "If you don't pay the hospital will collapse."

The Center for Reproductive Rights, which filed the suit this month in the High Court of Kenya, says detaining women for not paying is illegal. Pumwani is associated with the Nairobi City Council, one reason it might be able to get away with such practices, and the patients are among Nairobi's poorest with hardly anyone to stand up for them.

Maimouna Awuor was an impoverished mother of four when she was to give birth to her fifth in October 2010. Like many who live in Nairobi's slums, Awuor performs odd jobs in the hopes of earning enough money to feed her kids that day. Awuor, who is named in the lawsuit, says she had saved $12 and hoped to go to a lower-cost clinic but was turned away and sent to Pumwani. After giving birth, she couldn't pay the $60 bill, and was held with what she believes was about 60 other women and their infants.

"We were sleeping three to a bed, sometimes four," she said. "They abuse you, they call you names," she said of the hospital staff.

She said saw some women tried to flee but they were beaten by the guards and turned back. While her husband worked at a faraway refugee camp, Awuor's 9-year-old daughter took care of her siblings. A friend helped feed them, she said, while the children stayed in the family's 50-square-foot shack, where rent is $18 a month. She says she was released after 20 days after Nairobi's mayor paid her bill. Politicians in Kenya in general are expected to give out money and get a budget to do so.

A second mother named in the lawsuit, Margaret Anyoso, says she was locked up in Pumwani for six days in 2010 because she could not pay her $160 bill. Her pregnancy was complicated by a punctured bladder and heavy bleeding.

"I did not see my child until the sixth day after the surgery. The hospital staff were keeping her away from me and it was only when I caused a scene that they brought her to me," said Anyoso, a vegetable seller and a single mother with five children who makes $5 on a good day.

Anyoso said she didn't have clothes for her child so she wrapped her in a blood-stained blouse. She was released after relatives paid the bill.

One woman says she was detained for nine months and was released only after going on a hunger strike. The Center for Reproductive Rights says other hospitals also detain non-paying patients.

Judy Okal, the acting Africa director for the Center for Reproductive Rights, said her group filed the lawsuit so all Kenyan women, regardless of socio-economic status, are able to receive health care without fear of imprisonment. The hospital, the attorney general, the City Council of Nairobi and two government ministries are named in the suit.

___

Associated Press reporter Tom Odula contributed to this report.

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Wall Street ends sour week with fifth straight decline

NEW YORK (Reuters) - Stocks fell for a fifth straight day on Friday, dropping 1 percent and marking the S&P 500's longest losing streak in three months as the federal government edged closer to the "fiscal cliff" with no solution in sight.

President Barack Obama and top congressional leaders met at the White House to work on a solution for the draconian debt-reduction measures set to take effect beginning next week. Stocks, which have been influenced by little else than the flood of fiscal cliff headlines from Washington in recent days, extended losses going into the close with the Dow Jones industrial average and the S&P 500 each losing 1 percent, after reports that Obama would not offer a new plan to Republicans. The Dow closed below 13,000 for the first time since December 4.

"I was stunned Obama didn't have another plan, and that's absolutely why we sold off," said Mike Shea, managing partner at Direct Access Partners LLC in New York. "He's going to force the House to come to him with something different. I think that's a surprise. The entire market is disappointed in a lack of leadership in Washington."

In a sign of investor anxiety, the CBOE Volatility Index <.vix>, known as the VIX, jumped 16.69 percent to 22.72, closing at its highest level since June. Wall Street's favorite fear barometer has risen for five straight weeks, surging more than 40 percent over that time.

The Dow Jones industrial average <.dji> dropped 158.20 points, or 1.21 percent, to 12,938.11 at the close. The Standard & Poor's 500 Index <.spx> lost 15.67 points, or 1.11 percent, to 1,402.43. The Nasdaq Composite Index <.ixic> fell 25.59 points, or 0.86 percent, to end at 2,960.31.

For the week, the Dow fell 1.9 percent. The S&P 500 also lost 1.9 percent for the week, marking its worst weekly performance since mid-November. The Nasdaq finished the week down 2 percent. In contrast, the VIX jumped 22 percent for the week.

Pessimism continued after the market closed, with stock futures indicating even steeper losses. S&P 500 futures dropped 26.7 points, or 1.9 percent, eclipsing the decline seen in the regular session.

All 10 S&P 500 sectors fell during Friday's regular trading, with most posting declines of 1 percent, but energy and material shares were among the weakest of the day, with both groups closely tied to the pace of growth.

An S&P energy sector index <.gspe> slid 1.8 percent, with Exxon Mobil down 2 percent at $85.10, and Chevron Corp off 1.9 percent at $106.45. The S&P material sector index <.gspm> fell 1.3 percent, with U.S. Steel Corp down 2.6 percent at $23.03.

Decliners outnumbered advancers by a ratio of slightly more than 2 to 1 on the New York Stock Exchange, while on the Nasdaq, two stocks fell for every one that rose.

"We've been whipsawing around on low volume and rumors that come out on the cliff," said Eric Green, senior portfolio manager at Penn Capital Management in Philadelphia, who helps oversee $7 billion in assets.

With time running short, lawmakers may opt to allow the higher taxes and across-the-board federal spending cuts to go into effect and attempt to pass a retroactive fix soon after the new year. Standard & Poor's said an impasse on the cliff wouldn't affect the sovereign credit rating of the United States.

"We're not as concerned with January 1 as the market seems to be," said Richard Weiss, senior money manager at American Century Investments, in Mountain View, California. "Things will be resolved, just maybe not on a good timetable, and any deal can easily be retroactive."

Trading volume was light throughout the holiday-shortened week, with just 4.46 billion shares changing hands on the New York Stock Exchange, the Nasdaq and NYSE MKT on Friday, below the daily average so far this year of about 6.48 billion shares. On Monday, the U.S. stock market closed early for Christmas Eve, and the market was shut on Tuesday for Christmas. Many senior traders were absent this week for the holidays.

Highlighting Wall Street's sensitivity to developments in Washington, stocks tumbled more than 1 percent on Thursday after Senate Majority Leader Harry Reid warned that a deal was unlikely before the deadline. But late in the day, stocks nearly bounced back when the House said it would hold an unusual Sunday session to work on a fiscal solution.

Positive economic data failed to alter the market's mood.

The National Association of Realtors said contracts to buy previously owned U.S. homes rose in November to their highest level in 2-1/2 years, while a report from the Institute for Supply Management-Chicago showed business activity in the U.S. Midwest expanded in December.

"Economic reports have been very favorable, and once Congress comes to a resolution, the market should resume an upward trend, based on the data," said Weiss, who helps oversee about $125 billion in assets. "All else being equal, we see any further decline as a buying opportunity."

Barnes & Noble Inc rose 4.3 percent to $14.97 after the top U.S. bookstore chain said British publisher Pearson Plc had agreed to make a strategic investment in its Nook Media subsidiary. But Barnes & Noble also said its Nook business will not meet its previous projection for fiscal year 2013.

Shares of magicJack VocalTec Ltd jumped 10.3 percent to $17.95 after the company gave a strong fourth-quarter outlook and named Gerald Vento president and chief executive, effective January 1.

The U.S.-listed shares of Canadian drugmaker Aeterna Zentaris Inc surged 13.8 percent to $2.47 after the company said it had reached an agreement with the U.S. Food and Drug Administration on a special protocol assessment by the FDA for a Phase 3 registration trial in endometrial cancer with AEZS-108 treatment.

(Reporting by Ryan Vlastelica; Editing by Jan Paschal)

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