By Hideyuki Sano
TOKYO (Reuters) - Asian shares stepped back in cautious trade on Monday as investors look to see whether U.S. Republicans can hammer a tax reform deal quickly, while the British pound fell on growing doubts over Prime Minister Theresa May's leadership.
Tokyo's benchmark Nikkei dropped 0.7 percent, bringing down MSCI's Asia-Pacific Index 0.4 percent. Excluding Japan, shares in the region were down just 0.05 percent, with mainland Chinese shares rising 0.6 percent to two-year highs.
By Friday's close on Wall Street, the S&P 500 index had snapped an eight-week winning streak as investors took profits after U.S. Senate Republicans had unveiled a new tax plan that differed from the House of Representatives' version.
There are few signs of a compromise yet, with the head of the House of Representatives' tax-writing committee opposing a proposal from Senate Republicans that would hike taxes for some middle class Americans.
"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.
In the currency market, the dollar was also shackled by the uncertainty over the fate of the tax cut plans.
The euro traded at $1.1647, down slightly after having made its first weekly gain in four weeks last week.
The dollar fetched 113.58 yen, more than a full yen below its near seven-month high of 114.735 yen touched a week ago.
The British pound came under renewed pressure, slipping 0.5 percent to $1.3120 after the Times of London reported on Sunday that 40 Tory lawmakers have agreed to sign a letter of no confidence in May.
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 last traded at $5,948, down almost 25 percent from a record high of $7,888 touched on Wednesday.
Oil prices held firm in early Asian trade, propped up by concerns about the political instability in Saudi Arabia.
The news of a pipeline explosion in Bahrain, which Bahraini authorities said was caused by "terrorist" sabotage, are fanning worries about mounting tensions between Saudi Arabia and its Sunni allies and Shiite Iran.
Brent futures traded at $63.63 per barrel, up 0.2 percent and not far from their two-year peak of $64.65 set last week.
U.S. crude futures were up 0.25 percent at $56.88.
Traders were also keeping a wary eye on Venezuela, as the cash-strapped OPEC nation will hold a keenly-awaited meeting with investors to discuss renegotiating $60 billion in foreign debt on Monday.
Venezuelan President Nicolas Maduro said on Sunday the country would never default on its debt and its bonds had rallied on Friday on optimism ahead of the meeting.
"Fundamentally there still remains risk of default and if it runs out of money, its oil operations will be halted. If that happens, there could be an impact on oil prices, given its sizable oil output," said Tatsufumi Okoshi, senior commodity economist at Nomura Securities.
(Editing by Shri Navaratnam)
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