US stocks fell in light trading during a shortened holiday trading session with lawmakers running out of time to reach a budget deal that would prevent the US from going over the so-called fiscal cliff.

The Dow Jones industrial average fell 52 points to 13,139.08. The Standard & Poor's 500 index gave up 3 points to 1,426.66 The Nasdaq composite slipped 8.4 points to 3,012.60.

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Conservative activists said they would rather see the country fall off the cliff than agree to any tax increases for any Americans, no matter how wealthy. With many in Washington away for the holidays, that scenario appears increasingly likely.

"There is starting to become a little bit of an acceptance that we fall off the fiscal cliff," said JJ Kinahan, chief derivatives strategist for TD Ameritrade.

"People are starting to think about how they may plan their portfolio if that does happen."

Stocks fell sharply on Friday, with the Dow logging its biggest drop in more than a month, after House Republicans called off a vote on tax rates. That left federal budget talks in disarray just days before sweeping tax increases and government spending cuts are scheduled to take effect.

Senator Joe Lieberman said that "it's the first time that I feel it's more likely we'll go over the cliff than not," following the collapse late on Thursday of House Speaker John Boehner's plan to allow tax rates to rise on million-dollar-plus incomes.

Wyoming Senator Jon Barrasso, a member of the Republican leadership, predicted the new year would come without an agreement.

Failure to agree on a budget plan before year-end would lead to simultaneous spending cuts and tax hikes that many fear may push the economy back into recession.

President Barack Obama and Congress are on a short holiday break. Congress is expected to be back at work on Thursday and Obama will be back in the White House after a few days in Hawaii.

Shoppers are increasingly worried about the fiscal cliff deadline, adding to the fall's retail woes after Superstorm Sandy's passage up the East Coast.

Consumer spending drives about 70 % of economic growth, so how confident people are about parting with money is crucial for any economic recovery.

Stocks may also come under pressure in coming days as investors who have seen their holdings gain this year, decide to sell and book the capital gains tax in 2012 so as to avoid any potential increase in that tax rate next year, according to Kinahan, of TD Ameritrade.

Barring a dramatic sell-off in the year's final days of trading, stocks will end the year higher on signs that the US housing market is recovering and the US economy is adding jobs. The Federal Reserve also announced a third-round of its so-called quantitative easing program in September. The program, intended to lower the cost of borrowing and spur lending, helped underpin demand for stocks.

The S&P 500 is 13% higher for the year, the Dow is almost 8% up and the Nasdaq is nearly 16% higher.

Trading volumes were lower than average today before the Christmas holiday Tuesday. The stock market will close at 1 p.m. Monday and will reopen Wednesday.