Washington: The Trump administration de-escalated a confrontation with China on Wednesday, dropping plans to impose strict limits on Chinese investment in US technology companies and instead urging Congress to strengthen existing laws that apply to all foreign countries.

The administration's more conciliatory stance raised at least the possibility that the two sides could work toward a negotiated end to the punishing tariffs that they're set to impose on each other's goods beginning July 6. And it fuelled a rally in financial markets, which had been reeling on fears of an escalating trade war with China.

US President Donald Trump. Credit:Bloomberg

It was unclear whether the policy shift would lead to a cease-fire between the world's two biggest economies, which have been edging toward a high-risk confrontation, or whether any formal negotiations might soon begin. But the top White House economic adviser said the two sides were "in communication." Analysts said they took heart that the Trump administration had offered some semblance of an olive branch to Beijing.

"It seems like this move is being undertaken with the goal of coming to a resolution ultimately on the trade policy issues the US has with China," said Stephen Ezell, who manages global innovation policy at the Information Technology and Innovation Foundation think tank.