would find common ground to steer clear of the fiscal cliff boosted U.S. stocks on Friday. European shares sank to a 3-1/2-month closing low, for their worst week since the end of May, on persistent concerns over U.S. fiscal policy and the euro zone debt crisis.
U.S. Treasury yields fell to their lowest levels in over two months on Friday as scepticism over the U.S. budget talks drew safe-haven bids.
Top lawmakers from both major U.S. political parties on Friday hinted at the possibility of a budget compromise that involves spending cuts and additional revenue, although they were short on details.
The good news is the tone of Friday's White House meeting but the prospect of no agreement until at least mid-December fits our view that the two sides are starting negotiations from rather distant points, Sean Callow, senior currency strategist at Westpac bank in Sydney, said in a note.
As such, there will be plenty of negative headlines in coming weeks that weigh on Treasury yields and boost USD, which is yet again trading like a safe haven even when the bad news is generated by the US.
The dollar fell 0.3 percent, retreating from a two-month high of 81.455 hit on Friday against a basket of key currencies . The drop in the dollar supported gold, which added 0.5 percent to $1,722.39 an ounce.
The euro rose 0.3 percent to $1.2772, with traders waiting to know whether euro zone finance ministers and International Monetary Fund's Managing Director Christine Lagarde would agree on how to make Greece's debt manageable.
As the EU prepares a bundled aid package to avert a Greek default, headlines coming out of the meeting may fuel a relief rally in the euro, but we will maintain our bearish forecast for the single currency as the region faces a deepening recession, said David Song, currency analyst at DailyFX.
U.S. crude futures rose 0.8 percent to 87.57 a barrel and Brent rose 0.6 percent to $109.59.
Asian credit market spreads on the iTraxx Asia ex-Japan investment-grade index were little changed.