* Sterling falls after Brexit vote
* S&P 500 reverses earlier gains to end lower
* United States, China sound upbeat on trade talks (Updates to closing U.S. markets’ levels)
By Caroline Valetkevitch
NEW YORK, Oct 22 (Reuters) - The pound weakened and stocks on world markets declined on Tuesday after British lawmakers rejected the government’s proposed timetable for passing legislation to ratify its deal to exit the European Union.
U.S. Treasury yields dropped in line with sterling’s movements as investors bought safe-haven debt after the defeat in parliament, which made ratification of British Prime Minister Boris Johnson’s deal by the Oct. 31 deadline almost impossible.
Johnson said afterward it was up to the EU to decide whether it wanted to delay Brexit and for how long.
The pound fell further on the news. Sterling was last trading at $1.2887, down 0.55% on the day.
“There was optimism into this (the vote) that perhaps they could move forward. To have had a solution to Brexit would have eliminated one of the uncertainties that has hovered over the market for the last couple of years,” said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.
Stocks were mostly higher earlier amid some upbeat earnings and talk of progress in the U.S.-China trade negotiations.
Upbeat forecasts from Procter & Gamble Co and United Technologies Corp were offset by disappointing results from McDonald’s Corp and Travelers Cos Inc, which added to the day’s downbeat tone.
The Dow Jones Industrial Average fell 39.54 points, or 0.15%, to 26,788.1, the S&P 500 lost 10.73 points, or 0.36%, to 2,995.99 and the Nasdaq Composite dropped 58.69 points, or 0.72%, to 8,104.30.
The pan-European STOXX 600 index rose 0.09% and MSCI’s gauge of stocks across the globe shed 0.14%.
In the U.S. bond market, benchmark 10-year notes last rose 7/32 in price to yield 1.7677%, from 1.792% late on Monday.
IShares MSCI Turkey exchange-traded fund pared its gains and was last up 2% after a report by Turkish broadcaster NTV that Turkish President Tayyip Erdogan said the United States has not fully kept its promises agreed in last week’s temporary truce in northeastern Syria.
The Canadian dollar fell 0.08% versus the greenback at 1.31 per dollar. The ruling Liberal government of Justin Trudeau held on to power, but with a minority government after a closely fought election.
Chilean markets recovered from Monday’s losses, with investors comforted by President Sebastian Pinera’s willingness to listen to demands by protesters after violence over the weekend hammered markets last session.
Chile’s peso strengthened after a 2.7% slump on Monday - its worst day in more than six years.
On the trade front, China and the United States have achieved some progress in their trade talks, Vice Foreign Minister Le Yucheng said on Tuesday, adding that as long as both sides respected each other, any problem could be resolved.
That followed upbeat comments on Monday by the White House. U.S. President Donald Trump said efforts to resolve the U.S.-China dispute were going well, while White House economic adviser Larry Kudlow said tariffs on Chinese goods scheduled for December could be withdrawn if talks go well.
In commodities, Brent crude oil settled up 74 cents, or 1.3% at $59.70 a barrel, while U.S. West Texas Intermediate crude was 85 cents, or 1.6%, higher at $54.16.
Reporting by Caroline Valetkevitch in New York Additional reporting by April Joyner in New York; Editing by Sandra Maler Editing by Alex Richardson and Matthew Lewis