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Stocks fade after record run as U.S. tax bill digested

U.S. Dollar banknotes are seen in a box at the Money Service Austria company's headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger

By Lewis Krauskopf

NEW YORK (Reuters) - Wall Street faded having notched record highs on Monday, while the dollar and Treasury yields climbed, after a major U.S. tax overhaul cleared an important hurdle.

Markets digested the U.S. Senate's approval on Saturday of the biggest tax law change since the 1980s, taking President Donald Trump closer to his goal of slashing taxes on businesses.

On Wall Street, the benchmark S&P 500 (.SPX) set a record intraday high, but then pulled back and finished lower, while the Dow industrials still managed a record high close. MSCI's gauge of stocks across the globe gained 0.14 percent and also hit an all-time peak, but was well off its session high.

The Republicans' tax plan is expected to add $1.4 trillion over 10 years to the $20 trillion national debt to finance changes that they say would further boost an already growing economy.

The Dow Jones Industrial Average (.DJI) rose 58.46 points, or 0.24 percent, to 24,290.05, the S&P 500 (.SPX) lost 2.78 points, or 0.11 percent, to 2,639.44 and the Nasdaq Composite (.IXIC) dropped 72.22 points, or 1.05 percent, to 6,775.37.

Some of the biggest gainers were from areas expected to benefit from a lower corporate tax rate. The S&P 500 banks index (.SPXBK) surged 2.3 percent, while the Dow Jones Transport Average (.DJT) jumped 1.8 percent.

But the technology sector (.SPLRCT), which has led Wall Street's record-setting rally this year, tumbled 1.9 percent.

“You’re seeing what amounts to a pretty significant rotation going on in the market. The biggest evidence of that is tech,” Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

“People are taking some profits off the table in those sectors and areas that have been very strong this year,” Carlson said.

Aetna (AET.N) shares fell 1.4 percent after drugstore chain operator CVS Health (CVS.N) agreed to buy the health insurer for $69 billion. CVS shares fell 4.6 percent.

In Europe, the pan-European FTSEurofirst 300 index (.FTEU3) rose 0.97 percent.

Gains in the dollar helped Germany's dollar-exposed DAX (.GDAXI) leap from a two-month low, up 1.5 percent.

The dollar rose against a basket of currencies after the tax package moved forward.

The dollar index (.DXY) rose 0.26 percent, with the euro (EUR=) down 0.26 percent to $1.1858. The Japanese yen weakened 0.23 percent versus the greenback at 112.38 per dollar.

"Dollar bulls are pinning their hopes on the sweeping tax deal leading to a more rapid pace of interest rate hikes from the Federal Reserve," said Jake Spark, U.S. corporate hedging manager at Western Union Business Solutions, in Washington.

Benchmark 10-year notes last fell 3/32 in price to yield 2.3723 percent, from 2.363 percent late on Friday.

Gains in the dollar and Treasury yields were capped by political concerns in Washington, as investors remained worried about an investigation into Russian attempts to influence the 2016 U.S. election of Trump, analysts said.

Oil fell on profit-taking as the market eyed signs of rising U.S. production, though prices remained close to recent two-year highs thanks to last week's decision by OPEC and other producers to extend output cuts.

Brent crude futures (LCOc1) settled down $1.28, or 2 percent, at $62.45 a barrel. U.S. West Texas Intermediate futures (CLc1) were down 89 cents, or 1.5 percent, at $57.47.

Spot gold (XAU=) dropped 0.3 percent to $1,276.70 an ounce.

(Additional reporting by Gertrude Chavez-Dreyfuss in New York, Sruthi Shankar and Rama Venkat Raman in Bengaluru, Sujata Rao in London; Editing by Dan Grebler and Andrew Hay)