NEW YORK U.S. stocks slipped on Tuesday as investors fretted about Washington's ability to avoid a year-end budget crisis, but a Greek plan to buy back debt pushed the euro near a seven-week high.
Commodities struggled as weak U.S. manufacturing data and tense budget talks stoked worries about the world economy.
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.
Optimism on progress in the negotiations was dented after remarks by President Barack Obama, who rejected a Republican proposal to resolve the crisis as "out of balance" and said any deal must include a rise in income tax rates on the wealthiest Americans.
"People don't know if what's going on is political posturing or real negotiations that represent progress," said Bernard Baumohl, managing director and chief global economist at the Economic Outlook Group in Princeton, New Jersey.
Headlines on 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.
"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.
In light volume, the Dow Jones industrial average ended down 13.82 points, or 0.11 percent, at 12,951.78. The Standard & Poor's 500 Index was off 2.41 points, or 0.17 percent, to 1,407.05. The Nasdaq Composite Index slipped 5.51 points, or 0.18 percent, to 2,996.69.
World shares as measured by MSCI's all-country equity index edged down 0.02 percent.
The euro, however, approached a seven-week high above $1.31, boosted by better-than-expected terms for a Greek debt buy-back plan. The operation 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."
The euro rose 0.3 percent to $1.3098, having risen as high as $1.3107 on Reuters data, the strongest since October 18. Further chart resistance is located at the October high around $1.3140 and the September high around $1.3170.
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 3/32 to yield 1.606 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 pushed oil and gold lower. U.S. crude oil settled down 59 cents at $88.50 a barrel. Worries about weak demand for fuel increased after data showed on Monday that the U.S. manufacturing sector contracted in November, its worst month in more than three years.
Gold fell about 1 percent to its lowest in nearly a month after prices broke below key support levels.
(Additional reporting by Caroline Valetkevitch, Chuck Mikolajczak, Ryan Vlastelica and Wanfeng Zhou; Editing by Dan Grebler)