* Dollar index down 0.65 percent for week
* C$ steady on oil's strength, weaker greenback (New throughout, updates prices and market activity to U.S. market open; new byline, changes dateline, previously LONDON)
NEW YORK, Nov 10 (Reuters) - The dollar edged lower against a basket of currencies on Friday and was set for its biggest weekly drop in a month as disappointment that a landmark U.S. tax overhaul may be delayed until 2019 put a brake on the currency's recent rally.
The dollar index, which tracks the greenback against six major currencies, was down 0.12 percent at 94.329. For the week, the index was down 0.65 percent, on pace for its worst performance since the week ending Oct. 13.
The greenback has also lost 0.7 percent against the Japanese yen this week.
U.S. Senate Republicans unveiled a tax plan on Thursday that differed from the House of Representatives' version on several fronts, including deductions for state and local taxes, and the estate tax.
Complicating a Republican push for the biggest revamp of U.S. tax law since the 1980s, senators said that, like the House, they wanted to slash the corporate rate to 20 percent from 35 percent, but in 2019 rather than right away.
"It just highlights the challenge in reconciling the two (plans)," said currency strategist Erik Nelson of Wells Fargo Securities in New York.
"In the weeks prior to this ... there had been probably an increase in positive sentiment and optimism around the prospects for tax reform," he added.
The dollar index gained about 3 percent from mid-September through the end of last week. Commodity Futures Trading Commission data showed net short dollar positions dwindled last week to $3 billion, their smallest in four months, from $18 billion at the end of September.
"This week was a bit of a reality check for currency markets," Nelson said.
The weaker greenback and a recent rise in oil prices helped the Canadian dollar hold near a two-week high on Friday.
Sterling gained on stronger-than-expected data on trade and industrial output. The currency has suffered from concerns about Britain's exit from the European Union.
The pound was up 0.49 percent at $1.3213. It had plunged last week after the Bank of England raised interest rates for the first time in more than 10 years but said the market should expect only two more hikes in the next three years, leading investors to push back their expectations. (Reporting by Saqib Iqbal Ahmed; Editing by Lisa Von Ahn)