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U.S.-China trade tensions rattle markets

The Dow Jones Industrial Average tumbled more than 500 points Tuesday amid a broad sell-off on Wall Street as the U.S. and China inched closer to a potential escalation in their costly trade war.

The U.S. was set to impose higher tariffs on China on Friday, a day after representatives from both nations were scheduled to resume trade talks Thursday in Washington.

The looming deadline followed President Donald Trump’s threat on Sunday to raise tariffs on China in a bid to pressure Beijing to reach a long-sought resolution to the trade conflict between the world’s two biggest economies. The ongoing feud has raised costs on goods for consumers and companies.

The U.S. and China have raised tariffs on tens of billions of dollars of each other’s goods in their dispute over U.S. complaints about Chinese technology ambitions.

Washington has accused Beijing of reneging on its commitments and is preparing to raise import taxes on $200 billion of Chinese goods to 25% from 10%, and to impose tariffs on another $325 billion in imports, covering everything the country ships annually to the United States.

The possibility that the trade dispute could escalate represents a marked shift from just a few weeks ago, when talks between the U.S. and China appeared to be on track for an agreement. That expectation helped boost the stock market’s rally this year.

Jitters over the tougher rhetoric from the U.S. on trade sent the market sharply lower Monday, though the sell-off lost momentum by the end of the day. On Tuesday, the wave of selling intensified as the day went on.

The S&P 500 index was down 2% as of 3:10 p.m. Eastern Time. The Dow lost 555 points, or 2.1%, to 25,882. The index was briefly down 607 points. The Nasdaq composite, which is heavily weighted with technology stocks, fell 2.4%. Major indexes in Europe also fell.

The rout is the first big jolt for stocks since the turn of the year, when fear began draining out of the market and the S&P 500 started its march back to record heights.

For months, the S&P 500 climbed steadily as worry after worry that had hounded investors late last year seemed to dissipate. Chiefly, the Federal Reserve promised to take a patient approach with interest rates. That calmed investors who had worried the Fed would push the economy into a recession by raising rates too aggressively. Economic data also improved in the United States and China, which encouraged investors.

The big rise in stocks since the beginning of the year partly reflects complacence among investors, said Mark Hackett, chief of investment research for Nationwide Investment Management.

“We’ve basically flipped from being too pessimistic to perhaps being too optimistic,” he said.