European shares steadied early on Thursday in their first trading session following the Christmas break, with investors focusing on Washington's last-ditch efforts to avoid the so-called fiscal cliff.
At 0910 GMT, the FTSEurofirst 300 index of top European shares was up 0.1 percent at 1,138.83 points in low volumes, just a few points shy of an 19-month high of 1,144.15 hit last week.
"There is still hope for a last-minute deal, otherwise we're in for a correction in January. People have already priced in an agreement. Without it, the market can't stay at these levels," a Paris-based trader said.
Major tax hikes and spending cuts known as the "fiscal cliff" will come into force on Jan. 1 unless the White House and Democrat-controlled Senate and the Republican-run House of Representatives reach a budget deal to avoid an abrupt economic slowdown.
The impasse on how to cut the U.S. deficit has begun to affect consumer sentiment. Shoppers might have spent less this holiday season for fear of looming tax increases and reports of lacklustre retail holiday sales added to the urgency for a deal.
U.S. stocks fell on Wednesday, dragged lower by shares of retail companies.
"We remain sceptical and maintain that the most likely outcome is that we will 'go over the cliff' - that is, there will be no substantive moderation of the fiscal cliff policies before year-end," Nomura economists wrote in a note.
Resource-related stocks gained ground, boosted by renewed optimism about China's economic growth.
Rio Tinto added 1.4 percent, BHP Billiton gained 1.3 percent, and Total rose 1.7 percent.
Data showed on Thursday annual growth of China's industrial profits accelerated to 22.8 percent in November from October's 20.5 percent, fuelling expectations of a steady recovery for the world's second biggest economy.
Clariant AG surged 4.5 percent after the firm said it was selling its textile chemicals, paper specialties and emulsions businesses to U.S.-based investment firm SK Capital for $550 million.
Shares in nationalised Spanish lender Bankia fell 12.5 percent on fears of further losses for shareholders after the country's bank rescue fund said on Wednesday the bank has a negative valuation of 4.2 billion euros, the last step before the injection of 18 billion euros ($24 billion) of European money into the bank.
Around Europe, UK's FTSE 100 index was up 0.2 percent, Germany's DAX index up 0.2 percent, and France's CAC 40 up 0.7 percent, while the euro zone's blue chip Euro STOXX 50 index added 0.5 percent.
So far this year, the FTSE 100 is up 7 percent, the DAX up 30 percent, the CAC up 16 percent.
The Euro STOXX 50 is up 15 percent so far this year and the FTSEurofirst 300 up 14 percent, both on track to post their best annual performance since the bounce of 2009.