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ongoing@ (Adds McConnell reaction, details, updates markets)
* Trump says he has 'very good' dialog going with China
* China says hopes U.S. does not underestimate its determination
* New U.S. tariffs ready to launch for Trump-Xi meeting
WASHINGTON, May 14 (Reuters) - U.S. President Donald Trump on Tuesday called the trade war with China "a little squabble" and insisted talks between the world's two largest economies had not collapsed, as investors remained on guard for a further escalation of tit-for-tat tariffs.
Trump, who has railed against what he describes as China's unfair trade practices and threatened to impose punitive levies on all its imports, softened his tone in a series of remarks expressing optimism about reaching a trade deal with Beijing.
"We're having a little squabble with China because we've been treated very unfairly for many, many decades," Trump told reporters, referring to U.S. complaints about Chinese intellectual property and subsidy practices.
Trump also denied talks with China had broken down after Washington punctuated two days of negotiations last week with another round of tariffs on Chinese imports, with Beijing following suit on Monday with higher tariffs on U.S. goods.
"We have a dialog going. It will always continue," said the U.S. president, who has announced plans to meet Chinese President Xi Jinping at a G20 summit in Japan late next month. Trump described the dialog with China as "very good" and touted his "extraordinary" relationship with Xi.
Earlier, Trump tweeted that the United States would make a deal with China when the "time is right" and said that would happen "much faster" than thought.
Global stock markets, which have seen a sharp selloff in the past week on the back of rising U.S.-China tensions, rebounded. Major U.S. stock indexes were up more than 1%, recovering some of their losses on Monday. The U.S. dollar rose against a basket of currencies.
Earlier on Tuesday, Chinese Foreign Ministry spokesman Geng Shuang told a daily news briefing that it was his understanding that China and the United States had agreed to continue "pursuing relevant discussions."
"As for how they are pursued, I think that hinges upon further consultations between the two sides," Geng said.
U.S. Treasury Secretary Steven Mnuchin will plan for a trade meeting in China at some point, a U.S. Treasury spokesman said.
U.S. agricultural products have been targeted by China's retaliatory tariffs, and American farmers, a key political constituency for Trump, are increasingly frustrated with the failure of the two sides to find a solution to the dispute.
Soybeans, which was the most valuable U.S. export crop, bounced off a decade low on Tuesday as the market's focus shifted to weather-related planting delays that could reduce the crop size. Some analysts said the worst of the trade news was priced into the market.
In a tweet earlier on Tuesday, Trump appealed to China to buy U.S. farm products.
On Monday, he said his administration would provide about $15 billion in aid to farmers whose products were targeted by Chinese tariffs. He did not provide details on the plan, which follows $12 billion in similar farm aid last year.
There are concerns that the pain from tariffs could spread to the broader U.S. economy, with businesses raising prices on a range of consumer goods. Consumer spending accounts for two-thirds of U.S. economic activity.
Senate Majority Leader Mitch McConnell said on Tuesday that "nobody wins a trade war" but he hoped Trump's tactics in negotiations China would put the United States in a better position to move talks forward with Beijing.
TARIFFS IN HAND
Trump, however, is still dangling the prospect of higher tariffs on Chinese goods.
As negotiations toward resolving the U.S.-China trade war stalled last week, the United States raised the pressure by increasing tariffs to 25% from 10% on a previous, $200 billion list of Chinese imports.
China retaliated on Monday with higher tariffs on a revised list of $60 billion worth of U.S. products
Trump could launch 25% tariffs on another $300 billion worth of Chinese goods when he meets Xi next month. The list includes a wide range of consumer goods, from cellphones and computers to clothing and footwear, but it excludes pharmaceuticals, some specialty compounds and rare-earth minerals.
At the same time, China is vowing not to succumb to such pressure. China's Foreign Ministry said on Tuesday it hoped the United States did not "underestimate China's determination and will to safeguard its interests."
A further escalation of the trade war could disrupt global supply lines and damage an already slowing world economy, sending financial markets into a tailspin. The U.S. economy, while growing at a healthy clip, could come under pressure.
Sources have said the trade talks hit an impasse after China tried to delete commitments from a draft agreement that said its laws would be changed to enact new policies on issues from intellectual property protection to forced technology transfers.
Geng put the blame on Washington for going back on its word in some previous rounds of talks, including last May, when the two sides reached an agreement in Washington but then the United States backed out a few days later.
(Reporting by Alexandra Alper and Susan Heavey; Additional reporting by Makini Brice and David Lawder in Washington; Julie Ingwersen in Chicago; Ben Blanchard in Beijing and Noah Sin in Hong Kong; Writing by David Lawder and Paul Simao Editing by Susan Thomas and Lisa Shumamker)