TOKYO — Asian shares steadied in quiet pre-holiday trade on Monday after a slump late last week, with prices capped by nervousness about the risk of the US failing to avert a fiscal crisis.

European shares will likely be subdued, with financial spread betters predicting London’s FTSE 100 and Paris’s CAC 40 to open steady to 0.1% higher.

Activity in other assets was also subdued, with spot gold steadying as investors took to the sidelines, while oil extended losses, with US crude inching down 0.2% to remain below $89 a barrel while Brent futures eased 0.3% to $108.70.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.1% after falling to a near two-week low on Friday when House of Representatives speaker John Boehner failed to gain support for a tax plan, raising fear that the US may not be able to avert the fiscal cliff of automatic spending cuts and tax increases set to start on January 1.

The White House on Friday tried to rescue stalled talks but there was little headway as legislators and President Barack Obama abandoned Washington for Christmas.

Many market players still expect both sides to reach a compromise before the year-end deadline but heightening tension was likely to stifle trade already slowed by the holidays.

"It’s all about the US fiscal cliff issue," IHS Purvin & Gertz MD Victor Shum said. "The chances are that we will get a deal between the White House and the Republicans, but the fact that Boehner failed to get members to support his plan is worrying."

Australian shares advanced 0.25% in a shortened session before the Christmas break, lifted by blue chips, but trade was extremely thin with many players already away.

The Hang Seng index closed 0.2% higher, with Hong Kong financial markets closing at midday for the Christmas holiday. Trading will resume on Thursday.

Shanghai shares outperformed their peers with a 0.5% rise on expectation for more public fund allocations.

South Korean shares edged up 0.1% in light trading before Christmas Day, with the weakening yen and US fiscal uncertainty keeping investors uneasy.

Japanese financial markets are closed for a public holiday and will resume trading on Tuesday.

The dollar inched up 0.2% to ¥84.35, having fallen below ¥84 on Friday. The dollar hit a 20-month high of ¥84.62 on December 19.

The yen has been pressured by expectations that the Bank of Japan will be compelled to adopt more drastic monetary stimulus measures next year as incoming prime minister Shinzo Abe demands action by the central bank to bring Japan out of decades-long deflation.

Mr Abe stepped up pressure at the weekend, saying on Japanese television that he would try to reform a law guaranteeing the Bank of Japan’s independence if his demand for a binding inflation target were not met.

Currency speculators have increased their bets against the dollar in the latest week, according to data from the Commodity Futures Trading Commission released on Friday. Bets against the yen fell after reaching a more than five-year peak.

However, market players generally see the dollar staying firm for now as the US fiscal impasse will likely continue to sap investor appetite for risky assets and raise the dollar’s safe-haven appeal.

"It looks like all momentum for the fiscal cliff negotiations is gone," said Rob Ryan, strategist for RBS in Singapore. While the dollar could be swayed by year-end flows, "on balance I would see a stronger US dollar into the end of the year", Mr Ryan said.

EPFR Global, a fund-tracking firm, said on Friday that investors around the world pulled $4.1bn from bond funds worldwide during the week ending December 19, the most since August 2011, and favoured riskier exchange-traded funds (ETFs) despite the US budget tussle.

ETFs are generally believed to represent the behaviour of institutional investors, and can be used opportunistically to bet on various indices.

Eurozone to focus on Italy

The eurozone’s focus next year will turn to Italy, where Mario Monti announced on Sunday, two days after his resignation, that he would consider seeking a second term as Italian prime minister if approached by allies committed to backing his austere brand of reforms.

Stakes will be high in a parliamentary election set for February 24-25, as the world’s eighth-largest economy suffers from recession and public debt exceeding $2.6bn, adding to investors’ concern about growth and stability in the eurozone.

Italy faces a huge bond redemption in the first quarter of 2013 and a failure to secure funding could refuel concern about sovereign financing not only in Italy but also similarly indebted Spain, battering confidence in the euro.