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By Rodrigo Campos
NEW YORK (Reuters) - Stocks fell on Tuesday as U.S.-China tensions rose further ahead of high-level trade talks, while the British pound sank on reports that Brexit negotiations were close to breaking down.
Gold and the yen rose, indicating an increased appetite for safe-haven assets.
Wall Street stocks closed at session lows after Washington imposed visa restrictions on Chinese government and Communist Party officials over abuses of Muslim minorities. The move came only hours after the Trump administration widened its trade blacklist to include some of China's top artificial intelligence startups.
High-level talks between the world's top two economies on trade are due to resume on Thursday. The negotiations, the stock market's most important catalyst for months, have weighed on investor sentiment.
"The headlines are painting a picture of a less optimistic tone to the trade talks this week," said John Zaller, chief investment officer of MAI Capital Management in Cleveland.
"Anything less than a tariff delay would be a pretty big disappointment for the markets."
An increase to 30% from 25% in U.S. tariffs on $250 billion worth of Chinese goods is scheduled for Oct. 15.
The Dow Jones Industrial Average fell 313.98 points, or 1.19%, to 26,164.04, the S&P 500 lost 45.73 points, or 1.56%, to 2,893.06 and the Nasdaq Composite dropped 132.52 points, or 1.67%, to 7,823.78.
The pan-European STOXX 600 index lost 1.10% and MSCI's gauge of stocks across the globe shed 1.14%.
Emerging market stocks ended 0.18% lower despite gains overnight in Asia. Japan's Nikkei futures lost 0.74%.
Investors of Chinese mainland stocks returned from a week-long holiday to boost the index by 0.3%, but a private survey showed growth in China's services sector at its slowest in seven months in September.
With the focus turning to trade talks, U.S. President Donald Trump said he hoped Beijing would find a humane and peaceful resolution to political protests in Hong Kong, adding that situation had the potential to hurt the trade discussions.
GLOBAL GROWTH CONCERNS
The U.S. Treasury yield curve steepened, driven by a falling two-year yield after Federal Reserve Chairman Jerome Powell flagged openness to further rate cuts and said the Fed would expand its balance sheet to ensure money markets function smoothly.
Benchmark 10-year Treasury notes last rose 6/32 in price to yield 1.534%, from 1.553% late on Monday.
Markets have been waiting for the Fed to put in place policies to avoid the sort of reserve shortages that occurred recently and could disrupt the Fed's policy goals if they were to become a regular feature of financial markets.