Global Stocks Slip on U.S. Tax Reform Setback

European stocks and U.S. equity futures dropped in early trading Friday, weighed by complications in the U.S. effort to overhaul the tax code.

The Stoxx Europe 600 fell 0.6% during morning trading, with Germany's DAX and France's CAC 40 dropping 1.1% and 1%, respectively.

Ahead of the market open in New York, U.S. equity futures slipped, with the S&P 500 down 0.5% and the Dow Jones Industrial Average down 0.3%.

A new stumbling block to the proposed tax policy changes emerged overnight, as some Republican senators' concerns about the budget deficit delayed a vote. The promise of changes to U.S. taxes has been one of the driving forces behind the year's market rally.

"Very much at the last moment we've seen a couple of setbacks," said Sunil Krishnan, head of multi-asset funds at Aviva Investors. "That's not by itself a problem, but we're really running out of legislative days between now and Christmas, so it does mean it might not be done this year."

"Any sign of outright failure to agree U.S. tax reform would be greeted very poorly by markets," he added.

European bank stocks were down 0.6% in morning trading, while a modest increase in energy prices kept the European oil and gas sector down just 0.1%.

The drop came even as IHS Markit's regular business survey of the eurozone's manufacturing sector registered its second-strongest reading on record. The purchasing managers index came in at 60.1 for November. Any figure above 50 indicates that the sector is growing.

Bond yields in the U.S. and Europe followed the fall in stocks, with investors moving into the safest government debt.

Ten-year U.S. Treasury yields dipped to 2.37%, from 2.417% on Thursday's close. German bunds followed the same path, with yields falling to around 0.323%, from 0.371% Thursday.

Despite the minor tax setback in the U.S., some investors remained positive about the impact of tax changes on markets.

"We are a little bit more bullish than the consensus in the U.S. overall, " said Guillermo Felices, head of multiasset research and strategy at BNP Paribas Asset Management. "Events like tax reform you don't see fully priced until they actually happen."

"We also see earnings turning higher in Europe and Japan, so we're quite positive there," added Mr. Felices.

The Dow capped its eighth straight month higher Thursday, the longest winning streak in 22 years.

"Equities in the U.S. are like a runaway freight train," said Tim Kelleher, head of institutional foreign-exchange sales at ASB Bank in New Zealand.

But he added that some of Thursday's 1.4% gain could be attributed to end-of-month positioning.

Stocks largely returned to positive territory in late-session trading in the Asia-Pacific region Friday as well.

In Japan, the Nikkei Stock Average closed up 0.4%. China's Shenzhen A-Share index rose 0.8%.

Hong Kong's Hang Seng Index remained under pressure, down 0.4% mostly due to weakness in Tencent. The Chinese internet giant fell another 3.3%, putting it into correction territory with a 12% decline from last week's latest record high.

It has been a tough week for tech stocks globally, particularly for Samsung Electronics, which lost 8.3%, its worst week in 5 1/2 years.

In foreign-exchange markets, the British pound dropped against other major currencies, falling 0.3% against the euro and 0.4% against the dollar.

Oil prices rose in Asia as investors continued to react to the Organization of the Petroleum Exporting Countries and Russia's agreement to extend production curbs. The decision had been expected by the market. U.S. and Brent futures rose by 0.6% and 0.8%, respectively.

Write to Mike Bird at Mike.Bird@wsj.com and Lucy Craymer at Lucy.Craymer@wsj.com

European stocks and U.S. equity futures dropped ahead of the open in New York Friday, weighed by complications in the Republican effort to overhaul the tax code.

The Stoxx Europe 600 fell 0.3% in early afternoon trading in London, with Germany's DAX and France's CAC 40 each dropping by 0.7%. The broad European index had declined by as much as 0.8% earlier in the session.

U.S. equity futures slipped, with the S&P 500 down 0.3% and the Dow Jones Industrial Average down 0.2%.

A new stumbling block to the proposed tax changes emerged overnight, as some Republican senators' concerns about the budget deficit delayed a vote. The promise of changes to U.S. taxes has been one of the driving forces behind the year's market rally.

"Very much at the last moment we've seen a couple of setbacks," said Sunil Krishnan, head of multiasset funds at Aviva Investors. "That's not by itself a problem, but we're really running out of legislative days between now and Christmas, so it does mean it might not be done this year."

"Any sign of outright failure to agree U.S. tax reform would be greeted very poorly by markets," he added.

European bank stocks were down 0.2%, while a modest increase in energy prices kept the European oil and gas sector up by 0.1%.

Bond yields in the U.S. and Europe followed the fall in stocks, with investors moving into the safest government debt.

Ten-year U.S. Treasury yields fell to 2.384%, from 2.417% on Thursday's close. German bunds followed the same path, with yields falling to around 0.335%, from 0.371% Thursday.