LONDON Weakness in risk-sensitive banks, miners, and energy stocks pulled Britain's leading shares lower on Monday, the final trading session of 2012, with the outlook for 2013 soured by stalled U.S. budget talks.
The FTSE 100 closed down 27.56 points, or 0.5 percent, at 5,897.81 after a thinly-traded half-day session which ended at 1230 GMT. Volumes were less than 15 percent of the 90-day daily average.
In spite of the dull finish to the month, the UK blue chip index still added 0.5 percent in December, closing out the year with a seventh straight month of gains, the longest monthly winning streak since February 2005.
However, financial markets face kicking off 2013 without a deal to avert a U.S. "fiscal cliff" of year-end austerity measures and tax hikes as lawmakers in Washington struggle to reach an agreement, with significant differences still between the two sides. The U.S. Senate will convene at 1600 GMT to continue eleventh-hour discussions.
"Traditional end-of-year volatility (low volumes making bigger price swings) has been given a helping hand this year with stubborn stateside politicians appearing to forget that the 2012 election is over and the fate of the nation's economic growth is in their hands," Mike van Dulken, Head of Research at Accendo Markets said.
Overall the UK benchmark index added nearly 6 percent this year, helped by gains in banking shares, but it has lagged its main European peers - with Germany's Dax up almost 30 percent and France's CAC ahead 15 percent - as heavyweight mining shares struggled in the first half.
Miners lost around 30 percent peak-to-trough in 2012, but have recovered about 20 percent since June.
Tobacco stocks, which tend to be in demand even in harsh economic times, were among the stocks which found favour on Monday, with Imperial Tobacco and British American Tobacco, up 0.4 percent and 0.3 percent respectively.
And U.S. stock index futures pointed to a slightly higher open for Wall Street on Monday, looking to rebound after sharp falls on Friday to snap a five-session losing streak, as the talking continues in Washington.
While hope has largely evaporated for any sort of broad fiscal deal, the lack of panic on U.S. markets shows that investors still expect officials to find a solution to the budget problems early in the New Year. The measures that kick in on January 1 will also only have a gradual impact.
Technical analysts were also hopeful for further gains for the FTSE 100 index in 2013.
"A 2012 resistance line suggests a target as high as 6,300, and therefore a likely range for the UK index no worse than 5,700 - 6,300 for 2013," Zak Mir, Senior Analyst, Institute of Trading and Portfolio Management said.
"In fact, with a UK negative watch AAA credit rating, triple dip recession, a Canadian Bank of England Governor and even the unravelling of the Coalition government apparently factored in to the market, sideways trading appears to be the worst case scenario," Mir said.
(Additional reporting by Tricia Wright and Alistair Smout; editing by Ron Askew)