Taxes were on track to rise for many Americans this week unless lawmakers could cut a last-minute deal on Monday to avoid the "fiscal cliff," an outcome that seemed unlikely, but still possible.
Financial markets were on edge only hours before the midnight arrival at the long-awaited "cliff," an assortment of $600 billion in tax hikes and broad federal spending cuts on defense and domestic programs that has defied a political solution.
Senate Republican Leader Mitch McConnell and Democratic Vice President Joe Biden carried on "good talks" late into Sunday evening, aides said. Details of their discussions were unclear.
Any resolution in the tug-of-war over taxes and spending cuts forged in the Senate would need to win approval in the House of Representatives and the outcome in that chamber was uncertain.
"Republicans in the House do not want to raise tax rates without some significant spending cuts, and the Senate apparently has abandoned" a proposal to trim cost-of-living adjustments in the Social Security pension program, said Greg Valliere, chief political strategist at Potomac Research Group.
"So, while the Senate stumbles toward a potential compromise, there's absolutely no assurance that it could pass later this week in the House," he said.
Still, a serious jolt from the markets could prod Democrats and Republicans into action, even at the eleventh hour - or in this case, December 31 at 11:59 p.m. EST (1659 GMT).
"I believe investors will show their displeasure" at the lack of progress in Washington, said Mohannad Aama, managing director at Beam Capital Management, an investment advisory firm in New York.
U.S. stocks opened slightly lower on Monday, the last trading day of the year. The Dow Jones industrial average was down 51.99 points, or 0.40 percent, at 12,886.12.
Democratic and Republican leaders in the Senate had hoped to clear the way for swift action on Sunday. But with the two sides still at odds, Senate Democratic leader Harry Reid postponed any possible votes and the Senate adjourned until Monday.
The main sticking point between Republicans and Democrats remained whether to extend existing tax rates for everyone, as Republicans want, or just for income below $250,000 to $400,000, as Democrats have proposed. That threshold may be rising closer to a level of $500,000 or so, analysts said.
Also at issue were Republican demands for larger cuts in spending than those offered by President Barack Obama.
Hopes for a "grand bargain" of deficit-reduction measures vanished weeks ago as talks stalled.