THE sharemarket closed almost half a percentage point lower on Monday, driven down by negativity over stalling US fiscal cliff talks.
Late talks between the White House and the Senate failed to produce a strategy that would avert more than $US600 million in tax rises coming into effect on January 1, leaving Australian investors to follow last week's negative lead on Wall Street.
The S&P/ASX 200 Index fell 22.4 points, to close 0.48 per cent lower at 4648.9.
The prospect of no deal being reached between Republicans and Democrats over the looming crisis caused investors to offload stocks during Friday night's US session.
But despite negative sentiment, strategists held out hope that a deal could still be struck, saying it was now a question of "when" not "if".
"There is still time to do something to avoid the worst of the fiscal issues," Commonwealth Bank chief economist Michael Blythe said.
"But even if they do that, it's going to be an ongoing debate into 2013 and something that will continue to weigh on markets and potentially flow on to growth markets as well."
Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors, said Australian shares had so far shown resilience in the face of the crisis, considering a greater than 1 per cent fall in US stocks on Friday.
"I think that's partly because Australian investors think we've been here before, that it's just a question of when," he said. "Obviously it would have been nice if they reached an agreement by the end of the year, but the reality is that the new Congress can sit until January 3, so even if we go over the cliff on New Year's Day, the current Congress could reverse that."
CommSec economist Craig James said investors now appeared to be more optimistic about the US situation, and took heart from stronger than expected Chinese manufacturing figures.
"It was short-lived strength, but there was a degree of strength when the Chinese data came through," he said.
The HSBC purchasing managers' index posted 51.5 in December, up from 50.5 in November - the highest reading since May 2011.
"What we're seeing now is some of the late book squaring and profit-taking by a number of the professional investors and some retail-type investors," Mr James said.