With just hours left before the U.S. hits the “fiscal cliff,” investors on the other side of the world sold off stocks to lock in profits just in case budget negotiations in Washington fail.

American political leaders face a Monday night deadline to reach an agreement before steep tax increases and spending cuts begin to take effect Jan. 1. The cuts and increases would come at a time when the U.S. economy is still struggling to recover from the last recession.

Democrats and Republicans have failed so far to reach a budget deal despite intense negotiations. President Barack Obama says any deal must include higher taxes for the wealthiest Americans. Republicans, meanwhile, have been demanding deeper spending cuts than Democrats want to make.

Much of the impasse centers on how to address the automatic tax increases that take effect in 2013. That’s when tax cuts first enacted under President George W. Bush, and extended under Obama, are scheduled to expire.

Some economists predict the tax-and-spending effects of the fiscal cliff could eventually throw the economy into recession although if the deadline passes, politicians still have a few weeks to keep the tax hikes and spending cuts at bay by repealing them retroactively once a deal is reached.

The uncertainty drove down stock markets on the last trading day of the year. Australia’s S&P/ASX 200 fell 0.5 percent to close at 4,648.90, with profit-taking driving the market’s direction, analysts said.

Peter Esho, chief market analyst at CityIndex in Sydney, said Australian markets could cope with the fiscal cliff uncertainty as long as it doesn’t blow up into the financial crisis that followed the collapse of Lehman Brothers in 2008.

“I think the market has a fairly strong conviction that at some point these issues will be addressed but the timing will continue to create uncertainty,” he said. “A temporary deal will be well received by the markets.”

Mainland Chinese stocks rose after a private survey showed the country’s manufacturing growth at its strongest level in 18 months in December. The Shanghai Composite Index jumped 1.6 percent to 2,269.13 and the smaller Shenzhen Composite Index added 0.9 percent to 881.17.

Markets in Japan, South Korea, Thailand, the Philippines, Indonesia and Taiwan were closed for the New Year’s holidays. In early trading in Europe, Britain’s FTSE 100 was 0.3 percent lower to 5,905.71. France’s CAC—40 was 0.1 percent lower at 3,615.28.

Benchmark oil for February delivery rose 8 cents to $90.91 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 7 cents to finish at $90.80 per barrel in New York on Friday.

In currencies, the euro fell to $1.3186 from $1.3221 late Friday in New York. The dollar was unchanged at 86.07 yen.