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NEW YORK (Reuters) - U.S. stocks recovered from sharp losses to end only slightly lower on Thursday after the U.S. House of Representative said it would come back to work this weekend in a last-ditch effort to avoid the "fiscal cliff," while the yen hit a two-year low on expectations of bold monetary stimulus in Japan.
It was a fourth straight session of losses for U.S. stocks, while world stocks ended slightly higher.
Wall Street stocks tumbled in morning trade after Senate Majority Leader Harry Reid, the top Senate Democrat, said the United States may be poised to go off the "fiscal cliff." But in late trading, the House of Representatives said it set a work session for Sunday night ahead of the December 31 deadline for reaching a deal, paring losses that earlier that earlier had driven all three major stock indexes down about 1 percent.
Economists warn that the $600 billion (372 billion pounds) in higher taxes and spending cuts set to kick in from January could push the world's largest economy into recession, dragging other countries with it.
"There's no conviction in the move or the overall market, based on the across-the-board reduction we've seen in volume ... but there will be continued weakness until there's sustained positive direction coming from our leaders," said Joseph Cangemi, managing director at ConvergEx Group, in New York.
The House of Representatives may stay in session until January 2, the final day of the current Congress, according to a Twitter message from House Majority Leader Eric Cantor.
That is the day that another component of the "fiscal cliff" - $109 billion (67 billion pounds) in automatic spending cuts to military and domestic programs - is set to start.
The Dow Jones industrial average dipped 18.28 points, or 0.14 percent, to end at 13,096.31. The Standard & Poor's 500 Index was down 1.74 points, or 0.12 percent, at 1,418.09. The Nasdaq Composite Index was down 4.25 points, or 0.14 percent, at 2,985.91.
Shares of U.S. retailers fell for a second day following the Christmas holiday. The Morgan Stanley retail index was down 0.2 percent.
The MSCI global index was last up 0.1 percent, while European shares ended down 0.01 percent.
President Barack Obama returned to Washington on Thursday, cutting short his holiday to try to get a budget deal with Republican lawmakers.
The dollar rose to 86.15 yen on Reuters data, its highest since mid-August 2010. It was last up 0.5 percent at 86.02 yen.
The dollar has risen 12 percent against the yen in 2012, on track for its biggest annual gain since 2005. Yen selling has accelerated in the past two months on expectations that Shinzo Abe would be elected prime minister and would pursue policies to weaken the Japanese currency.
The Liberal Democratic Party won the elections on December 16, making Abe the prime minister. Since then, he has kept up pressure on the Bank of Japan to attack deflation and weaken the yen.
"If everyone is simply going to take Mr. Abe at his word, then we can go a lot further before this move is done," said Kit Juckes, strategist at Societe Generale in London.
The euro rose 0.2 percent to $1.3242 (8219 pence).
Prices on longer-dated U.S. Treasuries were higher after Reid's fiscal cliff comments and after the Conference Board, an industry group, reported a bigger-than-expected drop in American consumer confidence in December.
Benchmark 10-year Treasuries prices were 4/32 higher in price, yielding 1.7355 percent.
Brent crude futures ended down slightly as the unresolved U.S. budget talks left open the possibility that mandated tax hikes and spending cuts could be enacted, which could push the United States, the world's top oil-consumer, into recession.
Brent February crude fell 27 cents, or 0.24 percent, to settle at $110.80 a barrel. U.S. February crude slipped 11 cents, or 0.12 percent, to settle at $90.87.
In the precious metals market, gold prices rose for a fourth straight day for their longest winning stretch in nearly two months. But the gains were small for a market seen as a key hedge to the U.S. fiscal crisis.
Gold's February futures contract on COMEX, the most active on the New York exchange, settled at $1,663.70 an ounce, up $3, or 0.2 percent on the day. Over the past week, it has gained $17.80, or just over 1 percent, after hitting a four-month low of $1,645.90 on December 20.
Additional reporting by Wanfeng Zhou, Robert Gibbons, Richard Leong, Barani Krishnan and Ryan Vlastelica in New York; Editing by Chizu Nomiyama, Dan Grebler and Leslie Adler