NEW YORK (AP) -- Stocks have rallied back from an early jolt Wednesday, as investors weighed whether back-and-forth tariff threats between the U.S. and China could escalate into full-fledged trade hostilities or if the two sides could eventually settle their differences.
The S&P 500 index erased an early loss and the Dow Jones industrial average recovered most of its early 501 point drop. While industrial and chemical companies are falling sharply, consumer goods makers and some retailers are up.
The early declines followed an announcement by the Chinese government that it plans to impose tariffs of 25 percent on a list of more than 100 U.S. goods worth $50 billion, including soybeans and aircraft. The duties are in retaliation for U.S. plans to raise duties on a similar amount of Chinese goods.
But the Chinese Commerce Ministry said the effective date depends on whether the U.S. actually moves to raise its duties, and Trump administration officials including National Economic Council Director Larry Kudlow suggested that proposed tariffs on Chinese imports may not go into effect if China lowers barriers to trade.
"The most likely outcome is smoke, but no fire," said Bill Adams, senior international economist at PNC Financial. "The amount that both countries have invested in bilateral trade cooperation and economic cooperation is so significant that the costs of going back would be very painful, and more than either country would want to bear."
The S&P 500 index added 1 point to 2,614 as of 1:00 p.m. Eastern time. The Dow Jones industrial average dropped 52 points, or 0.2 percent, to 23,975. The Nasdaq composite rose 12 points, or 0.2 percent, to 6,952. The Russell 2000 index of smaller-company stocks rose 8 points, or 0.5 percent, to 1,520.
The Trump administration on Tuesday released a list of 1,300 imported Chinese products, including industrial robots and telecoms gear, subject to potential tariffs to protest Beijing's alleged theft of U.S. technology. China's envoy to the WTO said Beijing would challenge the U.S. moves.
Industrial companies were rocked. Aerospace company Boeing shed $7.62, or 2.3 percent, to $323.20. Farm equipment maker Deere lost $5.88, or 3.8 percent, to $147.16 and construction equipment maker Caterpillar fell $2.04, or 1.4 percent, to $143.02.
Adams, of PNC Financial, said the tariffs would be especially painful for companies in agriculture: machinery makers in the U.S. would pay more for imported components, and they wouldn't sell as much food in China because their products would be more expensive. He said that will stir up political pressure against the trade sanctions.
However Adams said that there was good news for food producers, as the Chinese government proposed duties on imported beef, but not pork or chicken.
Hormel Foods jumped $1.88, or 5.5 percent, to $36.10 and Tyson Foods rose $1.62, or 2.3 percent, to $71.55. Soybean futures traded on the CBOT fell 3.4 percent.
European stocks also fell. Germany's DAX lost 0.4 percent while the CAC 40 in France dipped 0.2 percent. The FTSE 100 in Britain gained 0.1 percent.
Hong Kong's Hang Seng slumped 2.2 percent with the decline accelerating in the final minutes of trading after Beijing announced specifics of its tariff hikes. Most other Asian indexes had closed before China announced its response to the U.S. tariff plans.
The biggest worry for investors is that an escalating trade war will derail a global economy that has gotten to a point where it's largely growing in unison. The U.S. economy has been humming along with a strong job market, while Brazil just last year emerged from its punishing recession and growth in the euro area has reached its highest level in a decade. The global economy is expected to grow 3.9 percent this year, which would be its strongest showing in seven years, according to the International Monetary Fund.
But economists say a trade war would drag down growth for the U.S. and other countries in a number of ways. Barriers to trade would obviously hurt U.S. exporters. But they could also hurt U.S. companies or individuals that don't do any exporting, if they have to pay higher costs for imported products. If the higher costs causes inflation to accelerate, central banks could be forced to raise interest rates more quickly, which would put another drag on economic growth.
Elsewhere, homebuilders rose a following strong quarterly report from Lennar, which gained $4.60, or 8.1 percent, to $61.70. D.R. Horton added $1.84, or 4.3 percent, to $44.72.
Oil prices fell hard early on, but later recovered. U.S. crude fell 17 cents to $63.34 a barrel in New York while Brent crude, used to price international oils, fell 32 cents to $67.80 a barrel in London.
The market has alternated between big losses and sharp recoveries as investors worry about the trade tensions, as well as controversies surrounding technology companies like Facebook. The S&P 500 has fallen more than 4 percent since March 1, the day President Donald Trump said he intended to place tariffs on steel and aluminum imports.
Bond prices turned lower. The yield on the 10-year Treasury note rose to 2.79 percent from 2.77 percent. Gold prices jumped as much as 0.9 percent early on, but in the afternoon they were up just 0.1 percent at $1,338.70 an ounce.
After an early loss, the dollar rose to 106.64 yen from 106.61 yen. The euro rose to $1.2297 from $1.2267.