Wall Street down as investors wait for the outcome of trade talks between the United States and China

NEW YORK (Reuters) – Key Wall Street indexes fell on Thursday following critical trade talks between the United States and China, although they have reduced losses considerably after US President Donald Trump said it was possible to reach an agreement this week.

US stocks fell by more than 1% early in the session, but had largely recovered after Trump said he received a "beautiful letter" from Chinese President Xi Jinping. The negotiators will meet at 5 pm EDT (9:00 pm GMT) Thursday, said Trump. They are ready to continue discussions until Friday.

Nevertheless, the United States did not give up the tariff increase on Chinese products worth $ 200 billion to 25% Friday. Trump also said that paperwork had been initiated to levy 25% tariffs on Chinese goods with an additional value of $ 325 billion.

Even with the possibility of other tariffs coming into effect, some investors remained optimistic about the possibility of concluding a trade agreement. This likely helped contain Thursday's drops, said John Stoltzfus, chief investment strategist at Oppenheimer Asset Management.

"We can very well see the rates set up tomorrow, but the problem will be solved," said Stoltzfus. "It is too unrealistic for one or the other party to make it a prolonged trade war."

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

The S & P 500 index briefly fell below its 50-day moving average, a momentum indicator observed closely during the session, but finished above that level.

The materials and technology sectors posted the largest declines in the S & P 500 sectors, with declines of 0.8% and 0.7% respectively.

Shares of chip makers, which derive much of China's revenue, continued to fall, with the Philadelphia semiconductor index ending down 1.2%. The index has fallen 6% since the beginning of the week and is poised to record its biggest weekly percentage loss since December.

Chipmaker's shares were also influenced by a disappointing earnings growth forecast from Intel Corp. Intel's shares fell by 5.3% and were the biggest drag for the S & P 500.

Trade-sensitive industry indicators were also affected, with a 1% drop in Boeing Co shares and 1.9% in 3M Co. shares.

The CBOE volatility index, an indicator of investor anxiety, rose for the fourth consecutive session and reached its highest level in more than three months.

Shares of Tapestry Inc. climbed 8.5%, the highest rate for S & P companies, after Coach purse maker beat quarterly earnings expectations and announced a share buyback plan $ 1 billion.

Shares of Chevron Corp rose 3.1%, bringing the biggest boost to the Dow and S & P 500, after the oil company announced that it would not increase its bid purchase of $ 33 billion to buy Anadarko Petroleum Corp.

Falling issues outnumbered NYSE rising issues by a ratio of 1.55: 1; on the Nasdaq, a ratio of 1.48 to 1 favored the decline.

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

US trade volume was 7.75 billion shares, compared to the average of 6.83 billion shares for the full trading session of the last 20 trading days.