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UPDATE 1-Trump defends China trade negotiations, vows deal will happen

(Adds Trump comments)

WASHINGTON, May 14 (Reuters) - U.S. President Donald Trump on Tuesday defended his trade war with China as tensions escalated and markets extended their losses, promising a deal with Chinese President Xi Jinping soon, even as fears escalated about a protracted battle.

In series of early-morning tweets, Trump kept up his "America First" agenda in support of hefty tariffs and called on U.S. companies to back him by shifting their businesses away from China.

"When the time is right we will make a deal with China," Trump said. "It will all happen, and much faster than people think!"

World stocks hovered near two-month lows on Tuesday, although slightly more optimistic comments from U.S. and Chinese officials on trade brought some comfort a day after equities suffered their worst sell-off so far this year.

Trump said he could make a deal with Beijing now, but said he would not be burned again and criticized China for last-minute attempt to renegotiate.

"We are in a much better position now than any deal we could have made," he said.

Trump also defended his administration's trade efforts with China as a model for U.S. negotiations with other nations.

"Other countries are already negotiating with us because they don't want this to happen to them. They must be a part of USA action," he added. (Reporting by Susan Heavey; Editing by Jeffrey Benkoe)