Australian shares closed nearly 1 per cent higher for the week, despite news that US House Republican leaders had walked away from their Plan B compromise for the country's fiscal cliff negotiations.
For the week, the benchmark S&P/ASX200 rose 40.5 points, or 0.8 per cent, at 4623.6 points, while the broader All Ordinaries rose 40.2 points, or 0.8 per cent, at 4635.2.
The local bourse performed strongly since Monday, and had charged higher again on Friday morning.
It rallied to a fresh 17-month high of 4658.7 points on Friday on anticipation that US leaders would strike a "fiscal cliff" deal before Christmas, thereby allowing the country to function properly next year.
But by midday on Friday it emerged that the Republican Party was no longer going to support its own deal - which included a suggestion that taxes rise only for those with an annual income of $1m or more - and the S&P futures dropped 2 per cent in the blink of an eye, to 1391 (March contract), with global risk assets tumbling.
The ASX200 was knocked sideways, dropping nearly 50 points from its daily high, to end the day 10.5 points lower overall.
Commonwealth Bank strategist Phillip Brown said the events were a major setback, and the bond market rallied accordingly.
"The US 10-year Treasury rallied about 5 basis points on the news. Australian rates have fallen about 3 basis points in sympathy with the US move," Mr Brown said. "We are loathe to speculate about what will happen from here, but an 'over the cliff' scenario is becoming more and more likely as time passes."
In a note to clients, IG Markets analyst Shan Stamu wrote: "It is clearly all about the fiscal cliff at the moment. With House Republican leaders seeming quite far apart on the proposal and only meeting again after Christmas, fears that we are still far from a deal have become apparent."
In other news, the New York Stock Exchange was bought by a little-known rival - the 12-year old IntercontinentalExchange, based in Atlanta - for $US8.2 billion ($7.8 billion). See full story on right.
It comes after the ASX was forced to abandon its multi-billion merger with the Singapore Exchange last year, after the federal government said it was not in the national interest.
For the week, ANZ Bank rose 30¢, or 1.2 per cent, to $24.95, after representatives from the bank predicted local and global economic conditions would remain soft in 2013, and political uncertainty would add to concerns.
Billabong slipped 11¢, or 11.8 per cent, to 82.5¢. The surfwear retailer's share price plummeted on Thursday after it slashed its earnings forecast and announced it was considering its fifth - and lowest - takeover offer in 10 months.
Commonwealth Bank rose 34¢, or 0.5 per cent, to $62. The bank is taking control of John Symond's Aussie Home Loans, increasing its stake to 80 per cent and extending its position as the country's number one home lender.
Qantas rose 6.5¢, or 4.7 per cent, to $1.46, after the competition watchdog approved plans by the airline to more closely integrate its operations with that of its low-cost airline Jetstar.
Telstra Corp rose 9¢, or 2.1 per cent, to $4.34, after the competition watchdog said the telco's proposed acquisition of the smaller Adam Internet would reduce competition in phone and internet services.
Whitehaven Coal rose 26¢, or 8.2 per cent, to $3.44, after it finalised a $1.2 billion debt facility that shored up funding for its flagship Maules Creek coal project.