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Wall Street’s main indexes have fallen ahead of critical trade negotiations between the United States and China though they pared losses significantly after President Donald Trump said reaching a deal this week was possible.

US stocks had fallen more than 1 per cent earlier in the session on Thursday but recovered much of those losses after Trump said he had received a “beautiful letter” from Chinese President Xi Jinping.

Negotiators will meet at 5pm local time on Thursday, Trump said. They are set to continue talks through Friday.

Still, the US has not backed down from hiking tariffs on $US200 billion ($A286 billion) worth of Chinese goods to 25 per cent on Friday. Trump also said that paperwork had been initiated to levy 25 per cent tariffs on a further $US325 billion worth of Chinese goods.

Even with the possibility of further tariffs going into effect, some investors remained optimistic that a trade agreement was within reach. That likely kept Thursday’s declines in check, said John Stoltzfus, chief investment strategist at Oppenheimer Asset Management.

“We may very well see tariffs put in place tomorrow, but it’s going to get resolved,” Stoltzfus said. “It’s too impractical for either side to extend this into a protracted trade war.”

The Dow Jones Industrial Average on Thursday fell 138.97 points, or 0.54 per cent, to 25,828.36; the S&P 500 lost 8.7 points, or 0.30 per cent, to 2,870.72; and the Nasdaq Composite dropped 32.73 points, or 0.41 per cent, to 7,910.59.

The S&P 500 index briefly slipped below its 50-day moving average, a closely watched indicator of momentum, during the session but ended above that level.

Materials and technology stocks posted the steepest declines among the S&P 500’s sectors, dropping 0.8 per cent and 0.7 per cent, respectively.

Shares of chipmakers, which get a large portion of the revenue from China, continued to slide, with the Philadelphia semiconductor index ending 1.2 per cent lower. The index has fallen 6 per cent so far this week and is on pace to post its biggest percentage weekly loss since December.

Chipmaker shares were also pressured by an underwhelming profit growth forecast from Intel; its shares fell 5.3 per cent and were the biggest drag on the S&P 500.

Trade-sensitive industrial bellwethers were also hit, with Boeing shares falling 1 per cent and 3M shares dropping 1.9 per cent.

The CBOE Volatility Index, a gauge of investor anxiety, rose for the fourth consecutive session and is at its highest level in more than three months.

In a bright spot, Tapestry shares jumped 8.5 per cent, the most among S&P companies, after the Coach handbag-maker beat quarterly profit estimates and announced a $US1 billion share buyback plan.

Chevron shares gained 3.1 per cent, providing the biggest boost to the Dow and the S&P 500, after the oil company said it would not raise its $US33 billion offer to buy Anadarko Petroleum.

Declining issues outnumbered advancing ones on the NYSE by a 1.55 to 1 ratio; on the Nasdaq, a 1.48 to 1 ratio favoured decliners.

The S&P 500 posted two new 52-week highs and 11 new lows; the Nasdaq Composite recorded 37 new highs and 98 new lows.

Volume on US exchanges was 7.75 billion shares, compared with the 6.83 billion-share average for the full session over the past 20 trading days.