Markets pare gains on fiscal cliff worries

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Markets on both sides of the Atlantic pared their gains in afternoon trading on concerns over the US fiscal cliff and disappointing US data.

The FTSE 100 closed up just 0.12 points at 5954.3, having earlier risen to a 17-month high thanks encouraging data from China and renewed optimism over a fiscal cliff deal.

Signs that the US budget impasse may be resolved before an end-of-year deadline had supported the gains. US House Speaker John Boehner has offered to consider any bill the Senate produces and Barack Obama has returned early from his Christmas break in Hawaii to restart talks today .

Economists warn that the "fiscal cliff" of higher taxes and spending cuts worth $600bn could push the world's largest economy into recession, dragging other countries with it.

"There is still hope for a last-minute deal, otherwise we're in for a correction in January. People have already priced in an agreement. Without it, the market can't stay at these levels," a Paris-based trader said.

But later in the afternoon, comments from Senate leader Harry Reid helped the markets pare their gains. He said going over the fiscal cliff "looks like where we're headed".

On Wall Street, the Dow Jones Industrial Average was down 82 points to 13032.33 at 5pm.

Data on Thursday showed US consumer confidence fell more than expected in December, hitting a four-month low.

The Conference Board, an industry group, said its index of consumer attitudes fell to 65.1 from 71.5 in November (Xetra: A0Z24E - news) .

Meanwhile, Labour department figures showed that applications for US jobless benefits fell 12,000 to 350,000 last week.

Mining companies on the FTSE 100 (FTSE: ^FTSE - news) had been boosted by data from China showing a recovery in profits at industrial firms, a sign that the country's economy is gaining momentum. ENRC, up 3.7pc, was the leading riser - one of seven mining groups in the top ten best performing companies in the index on Thursday.

"Its starting to look like a traditional cyclical rally. It's very thin volumes, but if you're looking for a correlation with events in China, then the miners are an obvious way to play that," Alan Higgins, Chief Investment Officer at wealth management firm Coutts, said.