The two sides agreed to reduce tariffs on each other's goods in a move that might help reverse a slowing global economy.

In this Aug. 6, 2019, file photo, a man walks past a money exchange shop decorated with different banknotes at Central, a business district in Hong Kong.
In this Aug. 6, 2019, file photo, a man walks past a money exchange shop decorated with different banknotes at Central, a business district in Hong Kong. (AP)

Prospects appear to have brightened for a preliminary breakthrough in the US-China trade war after the two sides agreed to reduce some punitive tariffs on each other's goods as part of an initial agreement.

A Chinese spokesman announced the development on Thursday as talks on ending the trade war progressed — a development that triggered a rally in US stock markets.

The agreement came during talks aimed at working out details of a "Phase 1" deal that was announced on October12.

Financial markets had been rattled by reports that China was pushing for tariffs to be lifted, which posed the prospect of a breakdown in talks.

Negotiators agreed to a "phased cancellation" of tariff hikes if talks progress, said a Commerce Ministry spokesman, Gao Feng.

"If the two sides achieve a 'Phase 1' agreement, then based on the content of that agreement, tariffs already increased should be cancelled at the same time and by the same rate," Gao said at a news briefing.

As for the size of reductions, Gao said that would depend on the agreement.

"For almost two years now, the US/China trade tussle has posed the biggest headwind to global growth," BMO Economics said in a research note. 

"But with promising signs of progress on the trade front, a shift in global central banks to easing ... and mostly better-than-expected corporate profits, US stocks" are reaching all-time highs."

On Wall Street, stocks pushed toward another round of records in the wake of the encouraging report from Beijing. The Dow Jones Industrial Average was up nearly 200 points in late-afternoon trading.

Governments of the two biggest global economies have raised tariffs on billions of dollars of each other's goods in the fight over China's trade surplus and technology ambitions. 

That weighs on trade worldwide and threatens to depress corporate earnings and global economic growth, which is already showing signs of slowing.

The October12 agreement was modest and details have yet to be put on paper but it was welcomed as a sign of progress toward ending the trade war.

President Donald Trump agreed to postpone a planned tariff hike while lower-level officials hammered out details.

Source: AP