Stocks weighed by doubts on U.S. tax reform, sterling falls

By Sinead Carew

NEW YORK (Reuters) - Stocks notched a small gain in choppy trade on Monday amid uncertainty over the fate of U.S. tax reform efforts, while Britain's pound fell as investors worried if Theresa May can remain Prime Minister and get a good European Union exit deal.

U.S. stock indexes made little ground. Some investors sought bargains after a few days of losses while others were put off by a dividend cut and weak financial forecasts at heavyweight General Electric (N:GE) which plans to radically shrink to focus on aviation, power and healthcare.

Investors were waiting for any signs of compromise on U.S. tax policy after U.S. Senate Republicans on Thursday unveiled a plan that would cut corporate taxes a year later than a rival House of Representatives' bill.

"What the market seems to be focussed on is if and when tax reform will be agreed on by Republicans in both the Senate and the House and how it'll fare in Congress," said Ryan Larson, head of U.S. equity trading at RBC Global Asset Management in Chicago.

While senators and representatives are trying to reach a deal, investors can still hope, said Nathan Thooft, senior managing director at Manulife Asset Management in Boston.

"They're still working through the math attached to the two plans. They still have to go through reconciliation but the fact the conversations are happening is a positive."

The Dow Jones Industrial Average (DJI) rose 17.49 points, or 0.07 percent, to 23,439.7, the S&P 500 (SPX) gained 2.54 points, or 0.10 percent, to 2,584.84 and the Nasdaq Composite (IXIC) added 6.66 points, or 0.1 percent, to 6,757.60.

The pan-European FTSEurofirst 300 index (FTEU3) lost 0.53 percent and MSCI's gauge of stocks across the globe (MIWD00000PUS) shed 0.25 percent, a third straight day of losses after hitting an intraday record high on Thursday.

Sterling fell 0.6 percent, its biggest daily fall against the dollar since Nov. 2. It was also down 0.6 percent against the euro (EURGBP=) after the Sunday Times newspaper reported that 40 members of parliament from May's Conservative Party agreed to sign a letter of no-confidence in her, eight short of the requirement to trigger a party leadership contest.

"That just highlights some of the internal weakness that the Conservative party has within its own self and I think that’s going to undermine the Brexit negotiations going forward," said Sireen Harajli, foreign exchange strategist at Mizuho in New York.

The+ dollar edged higher against a basket of other major currencies, recovering ground after a 0.6 percent drop last week. It (DXY) rose 0.1 percent, with the euro up 0.03 percent to $1.1666.

U.S. two-year Treasury note yields hit a fresh nine-year high as the yield curve resumed its flattening, with investors pricing in a Federal Reserve interest rate hike in December. The two-year yield (US2YT=RR) hit a nine-year peak of 1.687 percent, up from 1.662 percent Friday.

Oil prices held steady in a tight range Monday after briefly testing lower, with support from Middle East tensions and record long bets by fund managers balanced by rising U.S. production.

A purge of Saudi Arabia's leadership by Crown Prince Mohammed bin Salman has raised concerns about political stability in the region's largest oil producer.

U.S. crude fell 0.04 percent to $56.72 per barrel and Brent was last at $63.13, down 0.61 percent.