The 'cliff' refers to $600 billion in tax hikes and spending cuts due to take effect in the new year which, many analysts agree, could tip the nation into recession. Investors had expressed optimism in recent days that progress was being made, but the latest setback sent jitters through Latin American markets.
--- Commodities shares weigh on Brazil, Mexico bourses
"The problem is that the market ha d created a positive expectation in recent days that negotiations were progressing and that they would reach an agreement before the end of the year, but now it seems increasingly difficult," said economist Silvio Campos of Tendencias Consultoria in Sao Paulo, who nonetheless thought US politicians would reach a compromise.
Brazil's benchmark Bovespa stock index snapped a three-day rally, falling 0.44 percent to 61,007.03 as shares of the most widely traded commodities firms weighed. The index was up 2.35 percent for the week, its biggest weekly gain in a month. Preferred shares of iron-ore mining giant Vale SA fell 0 .76 percent, while state-controlled oil producer Petroleo Brasileiro SA, known as Petrobras, slipped 1.71 percent, contributing most to the index's losses. Vale said it would take a $4.2 billion writedown on its nickel and aluminium assets, according to a securities filing late Thursday.
Bank of America Merrill Lynch analysts said on Friday that the move should have a very limited impact on the company's stock, because it was already expected, it is cash-flow neutral and the company could potentially have a tax benefit on the charge. Shares of electric utility Companhia Energetica de Minas Gerais SA rose 6 .05 percent after the company said that it would pay 1.6 billion reais ($770 million) in dividends to shareholders. Mexico's IPC index lost was flat at 43,621.62, but was up 1.33 percent for the week. Shares of conglomerate Alfa dropped 3.35 percent. Chile's IPSA index ended the day - and the week - flat closing at 4,293.78.