Stocks were mixed Friday following a broadly healthy week but investors are increasingly worried about the stalemate in Washington over a new US stimulus while European markets were hit by fresh British quarantine rules.
Hopes that Democrats and Republicans would cast aside their mutual animosity to stump up much-needed cash for struggling Americans have been key to supporting equities for weeks.
But they were dealt a blow Thursday when senators broke up for a summer recess, saying they would not return until early next month, while both sides continued to trade accusations over who was to blame for the impasse.
Democrats have called on Republicans and the White House to double their $1 trillion offer, having reduced their own proposal to $2 trillion from an initial $3.5 trillion.
Senator Leader Mitch McConnell accused his opponents of pushing for several socialist measures to be introduced into the new bill, describing their tactics as "throwing spaghetti at the wall to see what sticks".
The expectation remains that an agreement will at some point be found, particularly with an election just over two months away and millions of Americans in financial crisis.
"Congress' political grandstanding delay is posing some risk for the global recovery," said Stephen Innes at AxiCorp.
"Still, there is no chance of this deal not going through... It is a matter of whether it is $1.5 trillion or $2 trillion, where bigger would be better."
Tokyo closed 0.2 percent higher and Shanghai ended more than one percent up. Sydney rose 0.6 percent and Mumbai put on 0.5 percent, while Taipei and Jakarta were also in positive territory.
But Hong Kong slipped 0.2 percent, Seoul fell more than one percent, Manila eased 0.3 percent and Bangkok shed 0.6 percent.
London and Paris fell more than one percent while Frankfurt was also sharply lower, with travel firms taking a hit after the UK government reimposed a quarantine for travellers from France and the Netherlands, prompting Paris to quickly announce a "reciprocal measure".
- China consumers reluctant -
Traders had a weak lead from Wall Street, where the stimulus struggle trumped better-than-expected data showing fewer than a million people claimed jobless benefits last week for the first time since the pandemic struck in March.
"US jobless (figures) have begun to decline again, suggesting the US labour market is starting to improve, notwithstanding the economic impact from the containment measures introduced to combat the COVID-19 outbreak," said Rodrigo Catril at National Australia Bank.
But he warned: "Ironically, an improving labour market may ease the pressure on US politicians to come up with a new stimulus plan."
There were also concerns that the US economy could suffer "significant damage" because of delays in passing any relief plan, Michael Hewson of CMC Markets warned.
In a sign of the battle governments could have in rebooting their economies, data out of China showed consumers were still reluctant to go out spending, with retail sales falling last month despite forecasts of a small increase.
While the drop was shallower than in June, Innes said it showed that it was "going to take more than stimulus and deep discounts on luxury products to get people shopping again".
At the same time, industrial production continued to grow, suggesting the economy's recovery is being supported by the manufacturing sector.
Investors will be keeping a close eye on talks at the weekend between China and the US that will review the trade pact signed in January, though expectations are for the deal to be kept in place, despite increasing tensions between Washington and Beijing.
- Key figures around 0810 GMT -
Tokyo: Nikkei 225: UP 0.2 percent at 23,289.36 (close)
Hong Kong: Hang Seng: DOWN 0.2 percent at 25,183.01 (close)
Shanghai: Composite: UP 1.2 percent at 3,360.10 (close)
London - FTSE 100: DOWN 1.2 percent at 6,113.61
Euro/dollar: DOWN at $1.1797 from $1.1820 at 2050 GMT
Dollar/yen: DOWN at 106.80 yen from 106.91 yen
Pound/dollar: DOWN at $1.3059 from $1.3066
Euro/pound: UP at 90.33 pence from 90.41 pence
West Texas Intermediate: DOWN 0.3 percent at $42.10 per barrel
Brent North Sea crude: DOWN 0.3 percent at $44.84 per barrel
New York - Dow: DOWN 0.3 percent at 27,896.72 (close)