LONDON (AP) -- Uncertainty over the progress of a U.S. budget deal capped the advance in most stock markets Thursday as did a downbeat economic assessment from the European Central Bank and renewed political uncertainty in Italy.
Earlier, markets had been buoyed by rising hopes of an imminent breakthrough in the budget talks. Failure to agree a deal could push the world's largest economy back into recession and potentially sink the global economic recovery.
European markets remained in positive territory but investors failed to add to the earlier gains.
The FTSE 100 index of leading British shares closed up 0.2 percent at 5,901.42 while Germany's DAX rose 1.1 percent to 7,534.54. The CAC-40 in France ended 0.3 percent higher at 3,601.65.
Italy's FTSE MIB underperformed, trading 0.8 percent lower after Silvio Berlusconi's center-right party pulled its support for the government of Premier Mario Monti, raising questions over its future and the progress of its economic reform program.
In the U.S., the Dow Jones industrial average was up 0.2 percent at 13,057 while the broader S&P 500 index rose 0.3 percent to 1,413.
As well as monitoring U.S. budget developments, investors are positioning themselves for Friday's U.S. jobs data, which often set the market tone for a week or two after its release.
This time the impact may be less pronounced, analysts said, as the figures for November are likely to have been heavily impacted by Superstorm Sandy, which battered the Eastern Seaboard in late October.
"The effect of hurricane Sandy are likely to be seen in the reading and perhaps with the Dow back above 13,000, some may be eager to book profits if there's any disappointment," he added.
The euro meanwhile took a pounding after the ECB cut its growth forecasts for the economy of the 17 European Union countries that use the euro but failed to cut interest rates at the same time from the current record low of 0.75 percent. The euro was trading 0.8 percent lower at $1.2968.
"The overwhelming negative reaction to the ECB's decision to do nothing today, but warn about impending and continued slow progress in the EU is a wakeup call to many investors who have been lackadaisical to the European risks of late," said Neal Gilbert, market strategist at GFT Markets.
Earlier in Asia, shares in China were flat-footed after big gains in the previous session when investors were cheered by hopes of more stimulus measures. The main Shanghai index ended 0.1 percent lower at 2,124.80, while Hong Kong's Hang Seng fell 0.1 percent to 22,249.81.
However, Japan's Nikkei 225 index rose 0.8 percent, in part buoyed by a weaker yen, to close at 9,545.16. That was its first closing above 9,500 since April.
Oil prices below $88 a barrel on Thursday as mounting evidence of ample seasonal U.S. crude stocks — the benchmark New York rate was down $1.71 at $86.17 a barrel.