Congressional Republicans on Monday submitted a budget plan to the White House that would include a rejection of billions of dollars in stimulus spending President Obama has proposed.
Lawmakers have until the end of December to come up with a compromise. Many analysts are saying there will be plenty of political rhetoric until a deal is reached -- rhetoric that is likely to have a direct influence on stock markets.
If a compromise is not signed into law by Dec. 31, tax cuts enacted during the administration of George W. Bush will expire along which several instituted in the last four years, and draconian spending cuts will kick in, especially for defense spending. This has been described as a "fiscal cliff" that could send the economy into a second recession.
By close of trading Tuesday, the Dow Jones industrial average lost 13.82 points or 0.11 percent to 12,951.78.
The tech-heavy Nasdaq index shed 5.51 points or 0.18 percent to 2,996.69. The Standard and Poor's 500 dropped 2.41 points or 0.17 percent to 1,407.05.
On the New York Stock Exchange, 1,471 stocks advanced and 1,538 declined on a volume of 3.2 billion shares traded.
The 10-year treasury note rose 5/32 to yield 1.61 percent.
The euro rose to $1.3093 from Monday's $1.3053. The dollar fell to 81.96 yen from 82.25 yen.
Japan's Nikkei 225 index gave up 0.27 percent, 25.72 points, to 9,432.46.
Britain's FTSE 100 index lost 0.04 percent, 2.20 points, to 5,869.04.