By Jeff Mason and Steve Holland

China and the United States had taken a 90-day hiatus in their trade war to hammer out an agreement, and another round of talks scheduled for next week in Beijing.

White House economic adviser Larry Kudlow told reporters on Thursday that the leaders of the two economic superpowers could still meet later.

"At some point the two presidents will meet, that is what Mr. Trump has been saying. But that is off in the distance still at the moment," he said.

The news prompted a sharp selloff in U.S. stocks, dashing the optimism that had been building that the countries were progressing towards a deal before tariffs on Chinese imports rise to 25 percent after the March 1 deadline.

The S&P 500 Index tumbled to its low of the day, down 1.6 percent in its biggest drop in more than a month. Treasury bond yields dropped as investors sought safety in sovereign U.S. debt. The benchmark 10-year yield slid 4 basis points to 2.66 percent, the lowest in nearly a week.

"I could see where that would impact the markets because obviously we had a lift in the month of January from optimism surrounding these trade talks," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois. "It does make sense the market is pulling back somewhat on that."

U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin are leaving for talks in China on Monday, one of the administration officials said.

The United States is pressing China to make major reforms, including on structural issues related to how it treats U.S. companies doing business there. Washington accuses China of stealing U.S. intellectual property and forcing American companies to share their technology. China denies the accusations.

Trump said in his State of the Union address on Tuesday that any new trade deal with Beijing "must include real, structural change to end unfair trade practices."

Such reforms have been a sticking point in talks so far.

Lighthizer told reporters at the conclusion of a round of talks in Washington last week that the two leaders may not meet if the negotiations had not progressed sufficiently.

"If we don't make headway between now and then, my advice would be we can't fit. But if we do make headway, and the president thinks we're close enough that he can close the deal on major issues, then I think he'll want to have a meeting and do that," he told reporters. "I have complete confidence in the president, both to close a deal if we get to that point, but also to make that judgment."

Trump has vowed to increase U.S. tariffs on $200 billion worth of Chinese imports to 25 percent from 10 percent currently if the two sides cannot reach a deal by 12:01 a.m. (0501 GMT) on March 2.

CNBC reported that the tariffs were likely to remain at the 10 percent rate. A source familiar with the talks expressed skepticism about that report to Reuters, and Lighthizer said last week that tariffs had not been a subject of the talks.

(Reporting by Jeff Mason and Steve Holland; Additional reporting by Alexandra Alper; Writing by Lisa Lambert; Editing by Grant McCool)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)