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WRAPUP 3-China sends top negotiator to U.S. in bid to avert tariff hike

Ben Blanchard and Jeff Mason

(Adds U.S. market reaction, details on difficulty of talks)

* Chinese vice premier heads to Washington

* Normal to have disagreements in talks, China says

* Markets fall on negative tone from Trump trade officials

* China will maintain "composure" -Communist Party paper

BEIJING/WASHINGTON, May 7 (Reuters) - Chinese Vice Premier Liu He will travel to Washington for trade talks on Thursday and Friday, Beijing said on Tuesday, setting up a last-ditch bid to avoid a sharp increase in tariffs on Chinese goods announced by President Donald Trump.

U.S. officials have accused China of backtracking in the past week on substantial commitments made during months of negotiations aimed at ending their bruising trade war, prompting Trump to issue a new deadline to raise tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent.

The higher tariffs would take effect on Friday if a deal is not reached by then, U.S. Trade Representative Robert Lighthizer told reporters on Monday at a briefing that cast doubts over prospects for a deal.

The negative turn in sentiment over the talks between the world's two largest economies shook Wall Street, causing major stock indexes to tumble more than 1 percent. Treasury yields and oil prices also fell as the potential for an unravelling of the trade talks sparked fresh concerns about global growth.

China's Commerce Ministry confirmed that Liu, who leads the talks for Beijing, will spend only two days in Washington, instead of the three days he had previously planned.

A person with knowledge of the talks told Reuters that Chinese negotiators sought to reverse earlier agreements to make changes to Chinese laws to reflect policy changes on a "comprehensive" range of issues. It would be difficult to overcome this setback and reach agreement on other sticking points, such as subsidies and cloud computing access, in just two days of talks, the person said.

RESERVED RESPONSE

China's response to the prospect of new tariffs has been reserved. On Tuesday, Foreign Ministry spokesman Geng Shuang said in a press briefing that mutual respect was the basis for reaching a trade agreement.

"Adding tariffs can't resolve any problem," Geng said.

"Talks are by their nature a process of discussion. It's normal for both sides to have differences. China won't shun problems and is sincere about continuing talks," he said.

Beijing's willingness to continue with the talks in the face of Trump's tweets shows it would remain calm and "focus on the talks rather than engage in public opinion warfare", the widely-read state-run Global Times tabloid said in an editorial.

In a commentary, the paper's parent, the ruling Communist Party's official People's Daily, said China had weathered such threats from the United States before, and would keep calm.

"China has complete confidence to face all possible difficulties and challenges in the China-U.S. economic and trade consultation process, which is why China has always been able to maintain its composure," it said on its app.

'EROSION OF COMMITMENTS'

Lighthizer, who has been an advocate for tough structural changes in China, said on Monday that Beijing had reneged on previous commitments that would have changed the pact substantially.

"Over the course of the last week or so we have seen ... an erosion in commitments by China," Lighthizer told reporters. "That, in our view, is unacceptable."

"We're not breaking off talks at this point. But for now ... come Friday there will be tariffs in place."

U.S. Treasury Secretary Steven Mnuchin, considered to be less hawkish toward China, said its backtracking became clear with "new information" over the weekend.

He declined to give specifics and said the U.S. side had originally hoped to conclude a deal either way this week.

"They were trying to go back on language that had been previously negotiated, very clear language, that had the potential of changing the deal dramatically," Mnuchin said.

China has repeatedly said it will make changes to open its economy on its own timeline, not in response to trade disputes.

But recently it has adopted new laws, including a Foreign Investment Law, and amended others, moves some see as efforts to tackle the concerns of the United States and other foreign investors, including those from China's largest trading partner, the European Union.

The United States now has 25 percent tariffs on $50 billion of Chinese machinery and technology goods, and 10 percent tariffs on $200 billion of products ranging from computer modems and routers to furniture, lighting and building materials.

Negotiations to remove U.S. tariffs have been one of the remaining sticking points. China wants the tariffs removed. U.S. officials want to keep some, if not all, as part of any final deal to ensure China lives up to its commitments. (Additional reporting by David Lawder in Washington and Sinead Carew in New York; Editing by Clarence Fernandez and Paul Simao)