By Georgina Prodhan and Danilo Masoni
LONDON/MILAN (Reuters) - European shares fell on Friday despite strong euro zone factory data, after a delay to a keenly awaited U.S. tax reform bill curbed appetite for the dollar and was set to cool a rally on Wall Street.
Euro zone shares, which started to accelerate losses about half an hour before the release of the data, fell as much as 1.2 percent to session low before stabilising down about 0.7 percent.
A purchasing managers' index showed that euro zone factories had their busiest month for more than 17 years in November and raised prices at the fastest rate in more than six years.
Forward-looking indicators suggested the momentum would continue to the end of 2017, capping what is expected to be the best year for euro zone economic growth in a decade.
The DAX, Germany's top share index, fell as much as 1.6 percent to hit its lowest level in around nine weeks before paring losses as the euro eased from the day's highs.
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Traders also pointed to month-end index re-weighting and shifts in positioning to explain the moves, which could be exacerbated by thinner trading volumes.
"Yesterday was a pretty heavy trading day with month-end profit taking as we approach the end of the year. I wouldn't read too much into moves in the next session," said Ameet Patel, analyst at Northern Trust. "Positioning is skewed towards tax reform not happening."
The single currency fell back from the day's highs of $1.1940 to trade at $1.18980, down 0.06 percent on the day.
The gap between German 10-year and 30-year borrowing costs was at its tightest level since late August as a lower-than-expected euro zone inflation number on Thursday pushed back prospects for monetary policy tightening well into the future.
In the United States, the Senate postponed voting on the tax bill late on Thursday as legislators wrestled with problems on an amendment and then adjourned, leaving it unclear whether a decisive vote on the bill would occur on Friday.
"The market's main focus is now whether the tax bill will pass or not," said Yutaka Miura, a senior technical analyst at Mizuho Securities in Tokyo.
Such uncertainty weighed on Wall Street futures, one day after confidence about the tax overhaul drove the S&P to close at a record high and the Dow Jones Industrial Average to break above the 24,000 mark for the first time.
Futures on S&P fell 0.4 percent and those on the Down Jones declined 0.3 percent. Futures on tech heavy index Nasdaq declined 0.7 percent.
Nevertheless, UBS strategists they still expected the tax reform to be passed: "We see corporate tax cuts as likely, yet still not fully priced in".
The MSCI World Index, which tracks stocks from developed economies, slid 0.2 percent. Japan's Nikkei had finished 0.4 percent higher, while MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.1 percent on the day.
The dollar index against a basket of six major currencies was flat at 93.030 but poised to eke out some gains for the week, supported by oil prices, after OPEC and other major producers agreed to extend production curbs.
Brent was trading at $63.33, up 63 cents on the day. U.S. light crude was up 50 cents at $57.91.
"This outcome was widely expected, but its confirmation has removed a clear near-term downside risk to prices," said Gordon Gray, head of oil and gas equity research at HSBC.
Gold edged higher as the dollar eased but was still trading near the 3-1/2-week low touched in the previous session, with investors flocking to riskier assets. Spot gold was up 0.07 percent at $1,275.20 an ounce.
In emerging markets, Turkish lira and bank stocks fell on Friday, extending losses after U.S. trial testimony implicated President Tayyip Erdogan in a plan to help Iran evade sanctions.
Elsewhere, investors were also puzzled by a sharp, unexplained move this week in a key European money market rate.
The Euro Over Night Index Average (EONIA) has spiked 8 basis points since the start of the week to its highest since mid-March at minus 24 basis points, Reuters data showed.
(Additional reporting by Helen Reid and Lisa Twaronite; Editing by Peter Graff)
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