* Dollar hit as Trump suffers a big political setback
* Dollar index slides to near 2-mth low
* Dollar/yen hits 4-mth low, euro strongest since early Dec (Updates throughout)
By Shinichi Saoshiro and Wayne Cole
TOKYO/SYDNEY, March 27 (Reuters) - The dollar slid to a near two-month low against a basket of currencies early on Monday as concerns mounted about the chances of U.S. fiscal stimulus after the stinging defeat of President Donald Trump’s healthcare package.
The inability to overhaul the U.S. healthcare system, a major election campaign promise of Trump and his allies, marked a significant political setback for the president in a Congress controlled by his own party.
The blow so early in Trump’s term has heightened worries about the chances of economy-boosting steps being enacted, such as tax reforms and big spending packages.
“Concerns towards the Trump administration have been reignited after his healthcare legislation setback. This is resulting in a bout of risk aversion weighing on the dollar,” said Shin Kadota, senior strategist at Barclays in Tokyo.
“There isn’t much going for the dollar right now and the market will be bracing for its further decline.”
The dollar index against a basket of major currencies was down 0.3 percent at 99.299 after going as low as 99.292, its lowest since Feb. 2.
The index had risen to a 14-year high near 104.00 early in January when expectations for significant stimulus under the Trump presidency were at their peak.
In a sign of stress for Wall Street stocks, U.S. equity index futures fell to a six-week low.
The dollar was down 0.8 percent at 110.470 yen after touching 110.420, its weakest since Nov. 22.
The euro was 0.45 percent higher at $1.0847 following a rise to $1.0849, its strongest early December.
Traders said the market was divided on what the failure of Trump’s healthcare bill meant for the outlook for U.S. tax cuts and infrastructure spending.
“There is a widespread perception that failure to pass the healthcare bill somehow derails the rest of the Trump agenda,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets.
“We think linking this particularly difficult legislative undertaking with the rest of the Trump is flawed,” he argued. “It actually presents a scenario where tax reform can potentially be accelerated.”
Others, however, including much of the mainstream press wondered how Trump would get any major changes through such a fractious Congress.
“It clearly highlights that divides remain, and it means that the policy paralysis that was often evident over recent years could linger,” wrote analysts at ANZ in a note.
“With fiscal policy uncertainty rising again the risk is that business and consumer sentiment reverse recent gains, which would have growth consequences.”
Against the sagging dollar, the pound was up 1.1 percent at $1.2515, reversing the previous day’s losses when the currency fell as investors braced for Britain beginning the formal process of leaving the European Union this week.
The Australian dollar was up 0.1 percent at $0.7632 and the New Zealand dollar rose 0.2 percent to $0.7044 <NZD=D4. (Editing by Lincoln Feast & Shri Navaratnam)