By Sue Chang and Chris Matthews, MarketWatch

Chinese vice premier talks trade with Mnuchin, Lighthizer

U.S. stocks struggled for direction on Tuesday with the Dow Jones Industrial Average surrendering most of its gains as political tension in the nation's capital overshadowed renewed optimism over U.S.-China trade talks.

How are the benchmarks trading?

The Dow Jones Industrial Average dropped 80 points, or 0.3%, to 24,342 after rising more than 300 points earlier. The S&P 500 index edged up a point to 2,639 and the Nasdaq Composite Index gained 23 points, or 0.3%, to 7,043.

What's driving the market?

A contentious meeting (http://www.marketwatch.com/story/trump-threatens-shutdown-over-border-wall-during-heated-meeting-with-pelosi-schumer-2018-12-11) between President Donald Trump and Democratic leaders Chuck Schumer and Nancy Pelosi over border security, with Trump threatening to shut down government, appeared to hurt already fragile sentiment.

Stocks had earlier risen on news that the U.S. and China launched formal trade talks with a phone call, including Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He, where they discussed changes to fundamental Chinese economic policies (http://www.marketwatch.com/story/us-china-kick-off-new-round-of-trade-talks-with-focus-on-agriculture-economic-reform-2018-12-11).

In the call, China informed U.S. officials that it had agreed to reduce tariffs on U.S. autos (http://www.marketwatch.com/story/china-to-slash-tariffs-on-us-auto-imports-to-15-2018-12-11) to 15%, down from 40%. The move was credited with lifting shares of Ford Motor Company (F) and General Motors Co. (GM).

Read:Stock market on 'cliff's edge' as S&P 500 tests this crucial support level: chart watcher (http://www.marketwatch.com/story/stocks-threaten-cliffs-edge-as-sp-500-dips-below-2616-chart-watcher-2018-12-10)

What data are in focus?

The National Federation of Independent Businesses issued its small business optimism index for November, showing it fell to 104.8 from 107.1 in October, its lowest reading since May (http://www.marketwatch.com/story/small-business-sentiment-slumps-to-7-month-low-in-november-2018-12-11).

The wholesale cost of goods and services rose by 0.1% in November (http://www.marketwatch.com/story/us-wholesale-prices-barely-rise-in-november-as-inflationary-pressures-recede-2018-12-11), above consensus estimates of a 0.1% decline, according to a MarketWatch poll of economists. Year-over-year rises in producer prices, however, fell to 2.5% from 2.9%, according to the Labor Department.

What are strategists saying?

Larry Benedict, chief executive of the Opportunistic Trader, said that investors remained "skittish."

"The true giveaway in my mind," that markets aren't about to mount a year-end rally, "is that volatility is still elevated at roughly 22," he said. "If this were the real deal, volatility would be near 15."

"Reports of phone calls are far from suggesting that the dispute is near to be resolved, while Lighthizer's comments over the weekend (https://www.cbsnews.com/news/transcript-amb-robert-lighthizer-on-face-the-nation-december-9-2018/) keep the door for further escalation open," said Charalambos Pissouros, senior market analyst with JFD Brokers, in a note to clients.

What stocks are in focus?

Semiconductor stocks rose following the launch of formal U.S.-China trade talks. Qorvo Inc. (QRVO) stock gained 1.7% and Advanced Micro Devices(AMD) shares advanced 1.6%.

Shares of Francesca's Holdings Corp. (FRAN) skidded 14% after the firm announced a quarterly loss and a decline in store foot traffic.

DSW Inc. (DSW) rallied 11% after the company roundly beat estimates for third-quarter profits and sales (http://www.marketwatch.com/story/dsw-shares-surge-16-premarket-after-earnings-blow-past-estimates-2018-12-11), while raising its 2018 outlook.

Pfizer Inc. (PFE) shares slid 1.3% after the stock was downgraded to neutral from overweight by JPMorgan.

How are other markets trading?

Asian stocks closed broadly higher (http://www.marketwatch.com/story/china-stocks-make-tentative-gains-as-japans-nikkei-falters-in-asia-2018-12-10), with Chinese benchmarks leading the way. The Shanghai Composite Index rose 0.4% the Shenzhen Composite gained 0.9%.

European markets advanced (http://www.marketwatch.com/story/european-markets-rally-on-upbeat-data-trade-talk-hopes-2018-12-11), with the Stoxx Europe 600 up on the day.

Crude oil rose while gold was flat and the U.S. dollar (http://www.marketwatch.com/story/dollar-slips-as-risk-appetite-bolstered-by-reports-of-us-china-trade-talks-helps-rivals-2018-12-11) gained.

--Barbara Kollmeyer contributed to this report

(END) Dow Jones Newswires

December 11, 2018 13:35 ET (18:35 GMT)