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Network International's stock will begin trading on the London Stock Exchange on April 11. Image Credit: File photo

New York: Key stock markets were soft on Tuesday and the dollar faltered as nervousness reigned surrounding China-US trade talks with less than one week until Washington is due to impose fresh tariffs on Chinese goods.

With the December 15 deadline approaching, US President Donald Trump still has not scrapped planned levies on about $160 billion of Chinese goods, which many fear could derail efforts to resolve the two countries’ churning trade war.

“Given the market has bought into the December tariff delay in a big way, all hell could break loose if the tariffs don’t get postponed,” said Stephen Innes at AxiTrader.

“Indeed, that would be a bitter pill for investors to swallow as the reality... sets in that they have yet again been taken down the trade talk garden path only to end up at the cliff edge.”

The London equity market also was hit by official data showing the UK economy flattened in October after contracting the previous two months.

But sterling still climbed to an eight-month high at $1.3190, one day after reaching a 2.5-year peak against the euro.

The British currency remains well supported going into the final straight of the UK general election Thursday, with Prime Minister Boris Johnson’s Conservatives tipped to win a majority that will help him drive through his Brexit deal.

The euro, meanwhile, got a shot in the arm from a closely-watched German confidence gauge - the ZEW barometer - which returned to positive territory after months in the red, although fears linger over trade tensions and an industrial slowdown.

Wall Street ended the day in the red for a second straight session while European stock markets ended their day off the worst levels seen in the morning, with Paris even managing a slight gain.

Major Asian indices closed little changed.

The consensus is that China and the United States will eventually hammer out a partial trade pact to relieve some of the uncertainty, and that has fueled a global equity rally for weeks.

However, conflicting comments from both sides - optimistic and downbeat - are keeping dealers on their toes.

While the week is full of key events including central bank decisions in the United States and Europe, market observers say the trade negotiations are critical.