US STOCKS-Wall Street drops as tensions climb ahead of trade talks

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* U.S. still pushing to limit capital flows to China - BBG
* China tones down expectations ahead of trade talks - SCMP
* Washington expands blacklist on Chinese firms
* Boeing falls on fresh worries over 737 MAX
* Indexes down: Dow 0.87%, S&P 500 1.09%, Nasdaq 1.12%

(Updates to early afternoon)
By Shreyashi Sanyal
Oct 8 (Reuters) - U.S. stocks fell on Tuesday as hopes of
progress in high-level trade talks were dashed by a report
Washington was moving ahead with efforts to limit capital flows
to China and the inclusion of some top Chinese startups to a
blacklist.
The declines were broad-based, with all the 11 major S&P 500
sectors trading lower and 28 of the 30 components of the
blue-chip Dow Jones index in negative territory.
The developments weighed on the fragile sentiment fueled by
a South China Morning Post report that said China had toned down
expectations ahead of the high-level talks, and that the Chinese
delegation could depart a day earlier than planned.
The reports hit just as U.S. and Chinese deputy trade
negotiators geared up to meet in Washington for a second day of
talks on Tuesday, with high-level discussions scheduled to start
on Thursday.
"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, Ohio.
"Investors are not expecting a big deal or a small deal this
week, but anything less than a tariff delay would be a pretty
big disappointment for the markets."
The U.S. widened its trade blacklist to include Chinese
video surveillance firm Hikvision 002415.SZ and surveillance
equipment maker Zhejiang Dahua Technology 002236.SZ among
others, drawing a sharp rebuke from Beijing. This pressured U.S. suppliers. Intel Corp INTC.O , Nvidia
Corp NVDA.O , Western Digital WDC.O and Seagate Technology
STX.O fell between 1% and 3.6%, while Ambarella Inc AMBA.O
declined 8.6%.
The Philadelphia Semiconductor index .SOX dropped 2%,
while the technology index .SPLRCT slipped 1%.
The Dow Jones Industrial Average .DJI was also weighed
down by a 1% fall in shares of Boeing Co BA.N .
The Wall Street Journal reported friction between the United
States and Europe could further delay efforts to resume flights
of the planemaker's best-selling 737 MAX jets, which have been
grounded since early 2019. Separately, Boeing said it delivered
half the number of planes in the first nine months of 2019 than
it did in the same period a year earlier. The Dow Jones Industrial Average .DJI was down 229.90
points, or 0.87%, at 26,248.12, the S&P 500 .SPX was down
31.94 points, or 1.09%, at 2,906.85. The S&P 500 and Dow indexes
fell below their 100-day moving average.
The Nasdaq Composite .IXIC was down 88.97 points, or
1.12%, at 7,867.33.
Despite the day's declines, the indexes were trading above
last week's lows, when a contraction in U.S. manufacturing and a
dismal reading on business activity sparked fears of a looming
recession in the world's biggest economy.
While moderate jobs growth in September lifted sentiment on
Friday, traders still see an 84% chance of the Federal Reserve
cutting interest rates by a quarter percentage point in October,
according to CME Group's FedWatch tool.
Those bets were bolstered on Tuesday by data that showed
U.S. producer prices unexpectedly fell in September. Investors will now focus on third-quarter earnings season
beginning next week and analysts expect the worst quarterly
profit performance since 2016, with earnings from S&P 500
companies declining nearly 3% from a year earlier, based on IBES
data from Refinitiv.
U.S.-listed Chinese stocks declined, with Alibaba Group
Holding BABA.N , JD.com Inc JD.O and Baidu Inc BIDU.O
falling between 1% and 3%.
Declining issues outnumbered advancers for a 3.23-to-1 ratio
on the NYSE and for a 3.43-to-1 ratio on the Nasdaq.
The S&P index recorded three new 52-week highs and 20 new
lows, while the Nasdaq recorded nine new highs and 121 new lows.