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Tokyo stocks drop after US-China trade hopes recede

Tokyo stocks dropped in early trade on Thursday after opening higher, as hopes for a US-China trade deal receded ahead of talks in Washington.

The benchmark Nikkei 225 index fell 0.50 percent, or 107.51 points to 21,348.87 shortly after the open, while the broader Topix index was down 0.95 percent or 15.06 points at 1,566.64.

European and US equities rallied on Wednesday after reports that China was open to a partial trade deal with the United States in key talks this week.

But the optimism receded on Thursday after a report in the South China Morning Post that US and China had made no progress on key issues in deputy-level talks.

The report "dashed hopes for progress in US-China talks", Okasan Online Securities said in a note.

With less than a week to go before the next round of punitive tariffs is due to hit, Beijing's top trade envoy Liu He will Thursday meet US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.

Rodrigo Catril, markets strategist at National Australia Bank, warned making a partial deal might not be something to welcome long-term.

"Market jitters along with increasing evidence that trade tensions are contributing to the slowdown in US, China and global growth, suggest that not only the US but also China could benefit from making an interim deal," Catril said.

"But making a soft trade deal carries the risk of triggering a strong political backlash ahead of the US elections next year," he said in a note.

The dollar was trading at 107.23 yen against 107.49 yen in New York Wednesday afternoon.

In individual stocks trade, Asahi Kasei rose 0.76 percent to 1,114 yen after Akira Yoshina, an honorary fellow at the chemicals company, was among Nobel Chemistry Prize laureates.

Automakers were lower with Nissan down 0.79 percent at 648.3 yen and Toyota off 1.44 percent at 7,022 yen.