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SYDNEY, Dec 16 AAP

December 16 2012, 11:48AM

Australian stocks are expected to start the last full trading week before Christmas on a cautious note amid ongoing negotiations over the looming US budget deadline.

Futures trading was pointing to a weak start on the local market on Monday, after Wall Street closed lower as investors fretted over the likelihood of US President Barack Obama and legislators in Congress reaching a deal over the fiscal cliff.

CommSec chief economist Craig James said despite some encouraging US manufacturing, inflation and industrial production data, and BHP Billiton and Rio Tinto being well-supported in London trade, the fiscal cliff was dominating sentiment.

"If we could solve the fiscal cliff problem then everything would be all right," Mr James said on Sunday.

"That's the only issue out there at the moment."

A series of US tax hikes and government spending cuts, referred to as the fiscal cliff, are due to hit at the start of calendar 2013.

Unless an agreement is reached, these measures are expected to push the US economy back into recession, which would have a significant knock-on impact on the global economy.

On the ASX24, the December share price index futures contract ended Friday night's (AEDT) session down 10 points at 4,571, on volume of 7,108 contracts.

In New York, the Dow Jones Industrial Average slumped 0.27 per cent, the S&P500 eased 0.41 per cent and the NASDAQ Composite tumbled 0.7 per cent.

"Progress in resolving the US fiscal cliff remains slow," AMP Capital Markets chief economist Shane Oliver said in a research note dated December 14.

"An agreement before year end would be a good outcome for equity markets."

In economics news, the minutes of the Reserve Bank of Australia's (RBA) December board meeting are due out on Tuesday, while the Westpac-Melbourne Institute leading index of economic activity report will be released on Wednesday.

The RBA cut the cash rate by 25 basis points to three per cent at its December meeting.

In companies news, ANZ, DuluxGroup and Incitec Pivot are among companies holding annual general meetings this week.

Meanwhile, the Australian Competition and Consumer Commission is expected to issue determinations on Qantas Airways' proposed alliance with Dubai-headquartered Emirates and carsales.com's deal with the Telstra-owned TradingPost.

The Australian dollar finished weekend trading at 105.72 US cents, up from 105.44 US cents at Friday's local close.

Local stocks closed flat on Friday - the benchmark S&P/ASX200 edged up 0.01 per cent and the broader All Ordinaries index rose 0.04 per cent.

Australian stocks have risen about two per cent so far in December.