*

Investors do not expect rapid, easy resolution on tariffs

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US negotiators report 'substantial progress' after two

days of

talks

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Markets recover ground after sharp tariff-fueled selloff

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Hopes high for increased clarity, but volatility fears

remain

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After first day, Trump said US, China negotiated 'total

reset'

(Updates to add US stock futures performance, quote)

By Suzanne McGee

May 11 (Reuters) - Investors welcomed the conciliatory

tone at U.S.-China trade talks this weekend aimed at cooling a

trade war between the world's two largest economies and

dispelling some of the uncertainty clouding financial markets,

though few expect a major breakthrough just yet.

In a sign of investor relief that the worst of a

U.S.-China trade war might be averted, U.S. stock futures rose

on Sunday evening. The S&P 500 E-minis rose 1.3%, while

Nasdaq futures added 1.6%.

Both sides declined to elaborate on negotiations, saying

that further details will be released on Monday, though U.S.

Treasury Secretary Scott Bessent and Trade Representative

Jamieson Greer on Sunday said a deal had been reached with China

to cut the U.S. trade deficit.

Chinese Vice Premier He Lifeng, who met his U.S.

counterparts in Geneva, described the meeting as "candid" and an

important first step.

"This is a step in the right direction, showing that both

sides are interested in coming to a constructive conclusion and

develop a better trade relationship," said Eric Kuby, the chief

investment officer at North Star Investment Management Corp in

Chicago.

"The details are quite sketchy, but I think the direction

sounds to be more cooperative rather than combative, and I think

that we have to view that as a positive."

The meeting in Switzerland could mark one of the biggest

developments since U.S. President Donald Trump launched sweeping

tariffs on April 2, which threw the global trade landscape into

chaos and set off extreme market volatility.

Recently, investors have expressed optimism that the

worst-case trade scenarios would not come to pass, and pointed

to signs of de-escalation between the U.S. and China as a reason

behind a rebound in equities.

"Markets may be encouraged by some agreement on a deal, but

it will remain contingent on further details being released,"

said Gennadiy Goldberg, head of U.S. rates strategy at TD

Securities in New York.

"Recent price action suggests some optimism around a trade

deal. If that turns out to be the case, pricing will have been

justified. The risk is if the deal is less substantial than

expected. Then the market might come away disappointed."

Indeed, despite comments by President Donald Trump ahead of

the talks suggesting a lower level of Chinese tariffs and a

trade deal announced on Thursday between the U.S. and Britain,

many market participants said they were not expecting major

breakthroughs.

"I'm not sure I would hit the 'buy' button on what we

have heard today, but if we can make substantive progress with

China I think the market will like it," said Jack Ablin,

founding partner and chief investment officer at Cresset Capital

in Chicago.

IMMEDIATE PACT SEEN AS UNLIKELY

Both the U.S. and China may want, or even need, to reach a

deal, said Liqian Ren, director of Modern Alpha at WisdomTree

Asset Management. At this early stage, however, there seems to

be little incentive to do so rapidly, she added.

"Each still wants to see how the other side copes with

negative headwinds," Ren said.

"Right now, the market is maybe a little bit too optimistic

in terms of what China and the U.S. can achieve and how fast

events will move."

Trade tensions between the two nations escalated last month,

when the U.S. boosted tariffs on all Chinese imports to a

whopping 145%, and China retaliated by raising levies on U.S.

imports to 125%.

On Friday, comments by Trump that an 80% tariff on Chinese

goods "seems right" - in his first suggestion of a specific

alternative to the 145% levies - created some hope of progress

toward resolving the dispute.

The benchmark S&P 500 stock index has already erased

the steep losses seen in the immediate aftermath of the tariffs

announcement on April 2, although businesses continue to warn

investors of their impact and the uncertainty they create.

The S&P 500 remains down about 8% from its February all-time

high and roughly 4% for the year.

Amid the tariff chaos, weak consumer sentiment surveys and

other "soft data" have raised concerns about U.S. growth,

although most economic data has indicated resilience in the

economy.

EYEING MARKET VOLATILITY

Volatility remains. The Cboe Volatility Index, the

options-based measure of investor anxiety, hovered around 22

late on Friday - well below its recent closing high of 52.33 in

early April, but above its longer-term median of 17.6.

One of the factors curbing the volatility has been the high

cost of establishing short positions betting on future market

declines, said WisdomTree's Ren.

"When a single (social media post) from the president can

make the market move 10%, it becomes very costly" to establish

those positions, Ren said. Equities soared on April 9 after

Trump paused many of the heftiest tariffs for 90 days.

Still, markets were poised for more volatility ahead, said

Matt Gertken, head of geopolitical strategy at BCA, a

macroeconomic investment research firm.

Gertken said the firm's best advice was to "sell on

strength."

Any signs of progress in the initial discussions would be

welcome and would allow China to devote more energy to its

domestic economic problems, said Andrew Mattock, a portfolio

manager at Matthews Asia.

"To talk about any other scenario, you end up with a

lose-lose outcome," he warned.