Europe Stocks Drop On Fiscal-Cliff Impasse

European stock markets moved broadly lower in thin Friday trading, after U.S. policy makers remained stymied over a budget deal but left the door open to further negotiations aimed at averting the so-called fiscal cliff.

The Stoxx Europe 600 index  fell 0.7% to close at 278.78, and closed out the week 0.8% lower. Banks were among the benchmark’s major decliners in Friday’s trading.

U.S. stocks also traded lower on Wall Street.

“Focus today will remain on U.S. budget negotiations, and the market will be quite sensitive to news flow regarding the fiscal cliff,” analysts at Danske Bank said.

“However, as a small deal will probably not tackle the debt ceiling, political uncertainty is set to remain high next year,” they wrote in a note. “Hence a small deal just before deadline is not likely to cause big relief in the market.”

Among the banks pulling back to cap off the holiday-shortened European trading week, shares of Banco de Sabadell SA  moved down 3%, BNP Paribas SA  shed 2.5% and Deutsche Bank AG   lost 1%.

Shares of troubled Spanish lender Bankia SA  slumped 27%, after the technical advisory committee of Spain’s main stock-market index, the IBEX-35, decided Thursday to exclude the bank from the index effective at year-end. Spain said earlier this week that Bankia has a negative value of 4.15 billion euros ($5.47 billion).

The IBEX 35 index  retreated 1.8% to 8,131 in Madrid and was down 1.9% on the week. Friday marked the last trading day of the year for the index, with the benchmark dropping 5.1% on the year, but gaining 2.5% on the month and 5.5% on a quarterly basis.

On a more positive note, shares of Porsche Automobil Holding SE  climbed 6.3%, after a U.S. court dismissed a lawsuit by 26 hedge funds seeking more than $1.4 billion in damages in relation to a failed attempt to take over Volkswagen AG  in 2008.

Broadly, stocks were weighed upon by concerns that U.S. lawmakers and the White House won’t agree on a budget deal in time to avert automatic spending cuts and tax hikes slated to take effect in the New Year. That would send the U.S. economy over the so-called fiscal cliff.

President Barack Obama has called congressional leaders to the White House later Friday in what might be a final attempt to hammer out a deal before the cliff deadline. Obama will make a new, scaled-back offer in a bid to avoid the cliff, Bloomberg News reported.

The House of Representatives is scheduled to gavel into session for an unusual evening session Sunday. That would give lawmakers a chance to review any plan the Senate may be able to pass.

On the data front in the U.S., the Chicago purchasing managers index rose to 51.6% in December, beating analyst expectations.

Separately, pending home sales rose 1.7% in November for a third month of gains.

Italian auction

Closer to home, the Italian Treasury sold a total of €5.871 billion in 5- and 10-year bonds at marginally higher yields than in a previous auction. The total targeted amount ahead of the auction was €6 billion.

The FTSE MIB index  gave up 0.8% to 16,273.38, with shares of Banco Popolare SC  down 0.6% and UniCredit SpA 1.1% lower. The FTSE MIB is closed for trading on the last day of the year on Monday and has gained 7.8% on the year, 2.9% in December and 7.8% higher on the quarter.

And in France, third-quarter economic growth was revised down to 0.1% from an earlier estimate of 0.2%.

In Paris, the CAC 40 index lost 1.5% to 3,620.25 and was off 1.1% on a weekly basis. Société Générale SA  fell 2.6% and Credit Agricole SA  gave up 1.8%.

Also lower, shares of Vinci SA  lost 2.3%. The construction group said late Thursday that has been selected by the Portuguese government to acquire Aeroportos de Portugal.

Among other notable movers in Europe, mining shares showed negative trends in London, tracking losses for most metals.

Shares of Anglo American PLC  lost 0.9% and Rio Tinto PLC    gave up 0.2%.

The U.K.’s FTSE 100 index lost 0.5% at 5,925.37. On the week, the index dropped 0.3%.

And in Frankfurt, the DAX 30 index  closed 0.6% lower at 7,612.39, with shares of German steelmaker ThyssenKrupp AG  off 1%. The index,with the German markets closed for trading Monday, posted a 29% rise on the year, marking the biggest yearly gain since 2003. The benchmark rose 2.8% in December and closed out the quarter 5.5% higher.

Outside the major indexes, shares of Nokia Corp.  slumped 2.9%. Amazon.com Inc. and several U.S. carriers have started to sell the handset maker’s Lumia smartphone at post-holiday discounts.