Stocks fell on Thursday as an ongoing trade war between the U.S. and China and worries of renewed legal issues for President Donald Trump dampened investor sentiment.

The Dow Jones Industrial Average dropped 76.62 points to 25,656.98 as Caterpillar lagged. The closed 0.2 percent lower at 2,859.98 with materials falling more than 0.6 percent. The Nasdaq Composite slipped 0.1 percent to 7,878.46.

Caterpillar and Boeing, two bellwethers of global trade, fell 2 percent and 0.7 percent, respectively. Deere shares also dipped 1 percent. Tech shares Alibaba and Netflix fell 3.2 percent and 1.5 percent, respectively, giving up earlier gains.

Tariffs on $16 billion worth of Chinese import-product categories took effect on Thursday. Beijing retaliated with its own fresh tariffs on $16 billion worth of imports.

The U.S. and China held talks on Wednesday that continued into Thursday, but observers did not have high hopes after Trump said he did not "anticipate much" to be resolved, in an interview with Reuters.

"I think there's disappointment that the tariffs came into effect today," said Kate Warne, investment strategist at Edward Jones. "Given the restart of the talks, there was some hope that those would be delayed."

Wall Street also fretted over Trump's legal troubles.

Michael Cohen, Trump's former personal lawyer, pleaded guilty on Tuesday to eight counts related to tax fraud, campaign contributions, making false statements to a financial institution and unlawful corporate contributions. Cohen also admitted to making payments to two women at the direction of Trump. Meanwhile, former Trump campaign manager Paul Manafort was found guilty on eight counts in a separate case.

The legal troubles have raised questions about whether Trump will remain in office. In an interview with "Fox and Friends," Trump said: "If I ever got impeached, I think the market would crash. I think everybody would be very poor."

Still, the market does not seem to care about Trump's legal issues at this point, said Nicholas Colas, co-founder of DataTrek Research, in a note. "That U.S. stocks recovered [Wednesday] is a good reminder that 2018 is not 1974," Colas wrote.

"Back then, oil prices had just risen 4x and the global system of fixed exchange rates was imploding" as former President Richard Nixon resigned under the threat of impeachment, he said. "Now, rates are low, the dollar is strong and corporate earnings remain robust. Those are the only things stock prices can (and should) actually discount."

Weekly jobless claims slipped by 2,000 to 210,000 last week despite the ongoing trade worries, the Labor Department said. Economists polled by Reuters expected claims to rise to 215,000.

The data come as leading central bankers meet for an economic symposium at Jackson Hole in Wyoming, where they will discuss the future of monetary policy. Federal Reserve Chair Jerome Powell will address attendees in a speech Friday.

Shares of AMD rose 6.7 percent after analysts at Rosenblatt Securities hiked their price target on the stock to $30 from $27, highlighting the company's manufacturing advantage against Intel.

—CNBC's Huileng Tan contributed to this report.