U.S. dollar, Wall St fall as tax reform in focus

By Sinead Carew

NEW YORK (Reuters) - The U.S. dollar was lower on Friday along with Wall Street stocks as investors pulled back from technology stocks and were skeptical President Donald Trump's Republican party would succeed in its efforts at U.S. tax reform.

U.S. Treasury yields edged lower, in line with declines in U.S. stock indexes and German 10-year bond yields, as risk appetites faded. The yield curve continued to flatten after strong U.S. housing starts data for October.

Stocks and the dollar saw brief boosts on Thursday from the U.S. House of Representatives' vote in favor of its version a tax overhaul bill that would cut corporate taxes.

But the celebration was short-lived as the focus turned to a Senate battle over its rival bill and worries about whether the House and Senate will ever agree on a compromise.

"Traders are not jumping the gun here. They're looking to see what happens as the political sausage-making process runs its course," said Karl Schamotta, director of global product and market strategy at Cambridge Global Payments in Toronto. He added that while potential benefits to the dollar may be priced in, tax reform disappointment would hurt it.

The dollar was also dented by a report that Special Counsel Robert Mueller's team last month subpoenaed Trump's election campaign for documents containing specified Russian keywords from more than a dozen officials.

The dollar index fell 0.27 percent, with the euro up 0.22 percent to $1.1795.

The S&P 500 was lower as investors eyed the prospects for tax reform and positioned themselves for the close of earnings season and what is typically a quieter week as many traders take a break around Thursday's Thanksgiving holiday.

"Investors are going to get net neutral on their position," said Matt Lloyd, chief investment strategist at Advisors Asset Management in Monument, Colorado. "The biggest driver is going to be what happens with the Senate and the House."

The Dow Jones Industrial Average fell 89.85 points, or 0.38 percent, to 23,368.51, the S&P 500 lost 4.86 points, or 0.19 percent, to 2,580.78 and the Nasdaq Composite dropped 5.71 points, or 0.08 percent, to 6,787.58.

The pan-European FTSEurofirst 300 index lost 0.34 percent and MSCI's gauge of stocks across the globe gained 0.09 percent.

In the Treasuries market, the U.S. two-year yield climbed to a new nine-year peak of 1.725 percent. It was last 1.717 percent compared with 1.712 percent on Thursday.

Benchmark 10-year notes last rose 7/32 in price to yield 2.338 percent compared with 2.361 percent late on Thursday.

German 10-year bond yields were on pace for their largest weekly fall in three weeks, with the safe-haven debt boosted by sales of risk assets and a fall in oil prices.

Oil prices rose but were on track for a weekly decline on oversupply concerns, as signs of rising U.S. output were compounded by doubts Russia would support an OPEC deal to extend curbs on production.[O/R]

U.S. crude rose 2.23 percent to $56.37 per barrel and Brent was last at $62.49, up 1.84 percent on the day.

(Additional reporting by Saqib Iqbal Ahmed, Gertrude Chavez-Dreyfuss in New York, Polina Ivanova, Ritvik Carvalho and Helen Reid, Jamie McGeever and Sujata Rao; Editing by Gareth Jones and Chizu Nomiyama)