(Corrects to clarify investors are awaiting details on the deal in paragraph 1)
* Tesla drops as SEC sues Musk for fraud, seeks to oust him
* Italy hikes deficit, 10-year U.S. bond yields tick lower
* S&P and Dow set to post best Q3 performance since 2010
* Futures down: Dow 0.29 pct, S&P 0.24 pct, Nasdaq 0.32 pct
By Amy Caren Daniel
Sept 28 (Reuters) - U.S. stock index futures dipped on Friday, the last trading day of the third quarter, on worries over Italy's proposed budget, with investors awaiting details on a trade deal between the United States and Mexico.
Italy's new government proposed a 2019 budget with a deficit three times bigger than the previous administration's target, sparking a sell-off in shares in Italian banks, whose big sovereign bond portfolios make them sensitive to political risk.
Yields on the benchmark 10-year Treasury bonds ticked lower and weighed on the shares of U.S. lenders, with Goldman Sachs, Wells Fargo and Bank of America trading down between 0.30 percent and 0.50 percent before the bell.
"The Italian deficit situation is leaning on stocks (futures), causing the yield curve to narrow and putting upward pressure on the greenback," Peter Cardillo, chief market economist at Spartan Capital Securities in New York, wrote in a note.
Also weighing was a pullback in the so-called FAANG group of stocks - Facebook, Apple, Amazon, Netflix and Google-Parent Alphabet - which led a rally on Wall Street on Thursday.
President Donald Trump, who wants major changes to the NAFTA, has already wrapped up a deal with Mexico and is due to publish the text on Friday. He has threatened to leave out Canada unless it signs up by Sunday.
At 7:18 a.m. ET, Dow e-minis were down 76 points, or 0.29 percent. S&P 500 e-minis were down 7 points, or 0.24 percent and Nasdaq 100 e-minis were down 24.5 points, or 0.32 percent.
So far, the benchmark S&P 500 index and the blue-chip Dow Jones Industrial Average index have risen 7.2 percent and 8.9 percent, respectively, in the quarter and were on track for their best third-quarter performance since 2010.
Tesla tumbled 13.0 percent after the U.S. Securities and Exchange Commission accused Chief Executive Elon Musk of fraud and sought to remove him from his role the electric car company.
Economic data in tap includes a U.S. Department of Commerce report at 8.30 a.m. ET, which is expected to show consumer spending rose 0.3 percent in August, compared to a 0.4 percent gain in July.
At the same time, another report is expected to show the yearly core PCE price index, the Fed's preferred inflation measure, increased 2 percent in August. The monthly change is forecast to have risen 0.1 percent. (Reporting by Amy Caren Daniel in Bengaluru; Editing by Arun Koyyur)