Global stocks drop, dollar up as "cliff" deadline looms

By Caroline Valetkevitch

NEW YORK (Reuters) - World stocks declined, the dollar gained and U.S. shares fell for a fifth day on Friday as the White House and U.S. lawmakers closed in on the "fiscal cliff" deadline with no deal in place.

President Barack Obama and Democratic and Republican lawmakers met Friday as they faced just days to reach a budget deal to avert massive tax increases and spending cuts that could drag the U.S. economy, the world's biggest, into recession.

The two sides are attempting to smooth over sharp differences on raising taxes on the wealthiest Americans and cutting spending on politically sensitive social welfare programs such as Medicare and Medicaid. But investors were skeptical that a deal could be accomplished before the deadline.

The MSCI all-world share index .MIWD00000PUS was down 0.5 percent, and the pan-European FTSEurofirst 300 .FTEU3 ended down 0.6 percent.

In U.S. trading, the Standard & Poor's 500 Index .SPX was down 15.67 points, or 1.11 percent, at 1,402.43, marking a fifth straight decline for the longest losing streak in three months.

The Dow Jones industrial average .DJI was down 158.20 points, or 1.21 percent, at 12,938.11, while the Nasdaq Composite Index .IXIC was down 25.59 points, or 0.86 percent, at 2,960.31.

"There's a pretty good chance that we won't have something in hand by year-end," said Jonathan Golub, chief U.S. equity strategist at UBS, in New York. "It should be pretty obvious that that is now the majority case."

Golub, however, said investors were still counting on a deal that would avoid most of the tax hikes and spending cuts next year even if it does come after the deadline.