President Barack Obama and congressional leaders were due to meet yesterday for the first time since November with no sign of progress in resolving their differences over the federal budget and low expectations for a "fiscal cliff" deal before January 1.

Instead, members of Congress are increasingly looking at the period immediately after the December 31 deadline to come up with a retroactive fix to avoid the steep tax hikes and sharp spending cuts that economists have said could plunge the country into another recession.

With taxes on all Americans set to rise when rates established under President George W Bush expire on December 31, politicians would be able to come back in January and take a more politically acceptable vote to cut some of the tax rates.

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US stocks fell yesterday, with the Dow Jones industrial average dropping 0.48% as investors fretted about the lack of certainty.

But some in the market were resigned to Washington going beyond the New Year's Day deadline, as long as a deal on deficit reduction comes out of the talks in early January.

"Regardless of whether the Government resolves the issues now, any deal can easily be retroactive. We're not as concerned with January 1 as the market seems to be," said Richard Weiss, a Mountain View, California-based senior money manager at American Century Investments.

The new factor in the mix was involvement by Republican Senate Minority Leader Mitch McConnell of Kentucky, who held talks with Mr Obama this week and said he expected a new proposal from the president that he would consider.