Failure to outright avoid the cliff could result in the U.S. sliding into a recession next year.
At the close of U.S. trading, the Dow Jones Industrial Average finished down 1.21%, the S&P 500 index was down 1.11%, while the Nasdaq Composite index fell 0.86%.
President Barack Obama was meeting with congressional Democrats and Republicans on Friday to find a way to avoid careening over the fiscal cliff, and the uncertainty sent investors selling stocks and seeking safe-haven positions in the U.S. dollar.
While early January can come a go without a deal, as tax hikes and spending cuts will take some time to materialize, markets will roil if U.S. leaders fail to resolve the fiscal cliff early in 2013.
Solid data out of the U.S. failed to boost spirits for long.
In the U.S. earlier, the National Association of Realtors revealed that pending home sales beat expectations in November, rising by 1.7% after a 5% increase the previous month.
Analysts were expecting pending home sales to rise by 1.0% in November.
Elsewhere in the U.S., the Chicago's purchasing managers' index rose to 51.6 in December, up from 50.4 in November and beating expectations for a rise to 51.0.
Leading Dow Jones Industrial Average performers included American Express, up 0.04%, Home Depot, down 0.67%, and DuPont, down 0.71%.
The Dow Jones Industrial Average's worst performers included Hewlett-Packard, down 2.42%, Exxon Mobil, down 1.88%, and Chevron, down 1.78%.
European indices, meanwhile, finished lower.
After the close of European trade, the EURO STOXX 50 fell 1.90%, France's CAC 40 fell 1.47%, while Germany's DAX 30 finished down 0.57%. Meanwhile, in the U.K. the FTSE 100 finished down 0.49%.