World stocks lower on U.S. tax reform uncertainty, May's woes rattle sterling

By Dhara Ranasinghe

LONDON (Reuters) - Uncertainty over a U.S. tax reform deal pushed world stock markets further away from recent record highs on Monday, while Britain's pound fell on growing concern about the future of Prime Minister Theresa May.

Stock markets in Frankfurt, Paris and London edged up in early European trade after suffering their worst week since August on Friday.

But the overall tone in global stock markets was defensive after last week's sudden stumble. MSCI's world equity index, which tracks shares in 47 countries, was down 0.2 percent -- pulling away from record highs hit last week.

Tokyo's benchmark Nikkei fell 1.3 percent, pulling down MSCI's Asia-Pacific Index 0.6 percent.

There was caution as investors waited to see whether a U.S. tax deal would be hammered out soon.

U.S. Senate Republicans have unveiled a new tax plan that differs from the House of Representatives' version and there are few signs of a compromise.

"All eyes are on what the Senate and the House of Representatives will do on their tax bills," said Nobuhiko Kuramochi, chief strategist at Mizuho Securities.

"That there is debate is not surprising at all. Still, it is an uphill moment for markets," he said.

STERLING TUMBLES

In currency markets, the spotlight fell on Britain's pound, which slipped 0.8 percent to $1.3082 as trouble mounted for May, while Brexit talks face a crucial deadline.

Sterling was set for its biggest one day fall against the dollar since Nov. 2 and was down 0.6 percent at 88.97 pence per euro.

The Sunday Times newspaper reported over the weekend that 40 members of parliament from May's Conservative Party had agreed to sign a letter of no-confidence in her.

That is eight short of the number needed to trigger a party leadership contest, the mechanism through which May could be forced from office and replaced by another Conservative.

"The political news over the weekend shows that her (May's) position is coming under increasing pressure and currency markets are reacting to that," said Alvin Tan, a FX strategist at Societe Generale in London.

"Though market positions are more evenly balanced than six months ago, the outlook for sterling is cloudy for now."

The dollar was shackled by uncertainty over the fate of the tax cut plans. It fetched 113.41 yen, more than a full yen below its near seven-month high of 114.735 yen touched a week ago.

The euro traded at $1.1647, down slightly after showing its first weekly gain in four weeks last week.

Most emerging market currencies were stable though the South African rand was the exception, hitting a one-year low of 14.47 per dollar on fears the country's credit rating would be downgraded.

Elsewhere, bitcoin fell to as low as $5,555 on Sunday, logging a weekly fall of 22 percent, its biggest since early July as some traders dumped it for a clone called Bitcoin Cash.

The digital currency bounced back 7.6 percent on Monday to trade at $6,295, still down 20 percent from its record high of $7,888 touched on Wednesday.

Elsewhere, oil trading was cautious amid ongoing tensions in the Middle East and after a rising rig count in the United States suggested producers there are preparing to increase output.

Brent crude futures were at $63.51 per barrel, little changed on the day. U.S. West Texas Intermediate (WTI) crude was at $56.71 per barrel, down 2 cents.

(Reporting by Dhara Ranasinghe; Additional reporting by Hideyuki Sano in TOKYO and Saikat Chatterjee in LONDON; Editing by Catherine Evans)