Financial markets have for weeks been sensitive to any developments in talks aimed at averting tax rises and spending cuts that would automatically be triggered early next year and, many fear, tip the US economy into a recession.
A deal had looked within reach as the two sides made concessions, but the climate soured after Republicans announced plans on Tuesday to put an alternative tax plan to a vote this week. On Wednesday, President Barack Obama threatened to veto the Republican measure if Congress approved it.
After eight consecutive sessions of losses, German Bund futures were up 12 ticks on the day at 144.27.
"It's definitely going to take the shine off some of the strong risk performance over the last couple of days," one trader said.
"You will probably get a bit of short-covering and perhaps on the peripheral side... you will probably get some chips taken off the table."
Center>Copyright Reuters, 2012