Stock markets around the world were seeing out 2011 fairly positively on Friday, the last trading day of the year, but most posted big declines for the year in the wake of Europe’s debt crisis, a faltering US economy and signs that China’s economy is no longer sizzling.

Markets have also been rocked by natural disasters, trading scandals, and sharp fluctuations in commodity prices, particularly in the price of oil amid the political turmoil in the Arab world.

In Europe, the trading backdrop has been particularly grim, with many of the main markets posting their worst year since 2008. That’s perhaps unsurprising given that most of the financial world’s attention has centred on the debt crisis, which has already seen three relatively small countries bailed out and is threatening a much-bigger country − Italy.

Nevertheless, the last day of the year proved positive. The FTSE 100 index of leading British shares closed up 0.1 per cent at 5,572.28, meaning that it ended the year 5.6 per cent lower, while Germany’s DAX ended 0.9 per cent higher at 5,898.35, a 14.7 per cent decline over the year. And the CAC-40 in France ended 1 per cent higher at 3,159.81. Despite its hefty rise on Friday, it ended the year around 17 per cent lower from where it started.

With policymakers failing to convince markets that they can deal with the crisis and the eurozone widely predicted to slip back into recession next year, the euro is ending 2011 just below the $1.30 mark, after falling to a 15-month low against the dollar on Thursday at $1.2857. Despite all the debt problems afflicting the eurozone, the euro has held up pretty well in 2011 − it started the year at $1.3345.

Much of the attention next year, at least in the early months, will likely centre on Italy, the eurozone’s third-largest economy.

Italy is the focal point of the eurozone’s struggle to deal with a crisis, caused by heavy levels of government debt in a number of the 17 countries that use the single currency. Fears of default on those debts mean that bond investors demand ever-higher interest. If a country can no longer borrow affordably to pay off bonds that are maturing, it winds up needing a bailout or defaulting.

Markets had grown fearful over the past few months over Italy’s massive debt burden of €1.9 trillion ($2.5 trillion) and Italy’s ability to continue dealing with it. Next year alone, Italy has some €330 billion ($431 billion) of debt to refinance and it will want its borrowing rates to start falling. It will start the new year with its benchmark 10-year yield standing around the seven per cent mark, a level that is considered unsustainable in the long-run and eventually forced Greece, Ireland and Portugal to seek bailouts.

“There is no hiding from the fact that Italy’s benchmark 10-year bond yield is up over two per cent on the year compared to declines in other major European economies,” said Will Hedden, sales trader at IG Index.

Wall Street traded modestly lower but US stocks have performed much more solidly than their European and Asian counterparts this year, largely on the back of a strong year-end performance related to an upbeat run of US economic data.

The Dow Jones industrial average looks like it’s going to end up higher for the year. Though trading Friday 0.1 per cent lower at 12,277, it’s still above the 11,577.51 mark it started the year. However, it’s still touch and go whether the broader Standard & Poor’s 500 index will end up in the black. It’s down 0.1 per cent at 1,263, marginally up on the year’s start point of 1,257.64.

Though the performance of the US economy has played second fiddle to Europe for much of the year, it has the potential for shoring up confidence in 2012 − an election year in the US − if the recent positive news continues.

“Crystal ball-gazing can begin in earnest over the weekend but I am tempted to conclude − more of the same in Europe, easier policy in China, and further asset reflation in the US, which finally gets life back into the housing market and thereby drives optimism about the 2013 economic outlook,” said Sebastian Galy, an analyst at Société Générale.

Asian markets have already closed out the year and most markets had a year to forget. Japan’s Nikkei 225 index, after three straight days of losses, managed to eke out a 0.4 per cent rise on Friday to end the year at 8,429.45. However, that was its lowest closing since 1982.

Meanwhile, China’s benchmark gained 1.2 per cent to close at 2,199.42 − still, a 21 per cent loss for the year as the impact of Beijing’s multibillion-dollar stimulus faded and the government tightened curbs on lending and investment to cool blistering economic growth.

Elsewhere in Asia, Hong Kong’s Hang Seng Index gained 0.2 per cent to close at 18,434.39 − a precipitous slide of 19.7 per cent from a year ago. Singapore’s Straits Times Index closed down one per cent at 2,646.35 − a 17.5 per cent dive.

Australia’s benchmark S&P ASX 200 ended the year at 4,140.4 − down 0.4 per cent on the day and 14.5 per cent lower for 2011. A day earlier, South Korea’s benchmark Kospi closed at 1,825.74 on Thursday − 11 per cent down on its last trading session of the year on Thursday.

Oil prices, meanwhile, were poised to close out the year below the $100 a barrel mark − benchmark crude for February delivery was down 10 cents at $99.55 a barrel in electronic trading on the New York Mercantile Exchange.