UPDATE 3-Chinese stocks fall as details emerge from Trump-Xi trade talks

Chinese shares pulled back from a decade high on Thursday as U.S. President Donald Trump and Chinese President Xi Jinping concluded their high-stakes meeting in South Korea that has fuelled cautious optimism for a potential trade-war truce. Investors appeared heartened by early signs of cooling tensions between the world's top two economies after recent escalations, while also positioning defensively with a sense of deja vu that the real deal may offer far less to celebrate.

After a near two-hour meeting with Xi, Trump said he had struck a deal to reduce tariffs on China in exchange for Beijing resuming U.S. soybean purchases, keeping rare earths exports flowing and cracking down on the illicit trade of fentanyl. The immediate market reaction was choppy with traders trying to make sense of the information released so far and awaiting further details.

China has yet to release any details of the talks. As they sat down with their delegations to begin talks, Xi told Trump via a translator it was normal for the two leading economies of the world to have frictions now and then. The benchmark Shanghai Composite Index hit its highest level since 2015 in early trading but was last down 0.8%. Hong Kong's Hang Seng Index fell 0.68% after resuming trade following a holiday on Wednesday.

"I don't see there's any major optimistic surprise at this point, both for the markets and the U.S.-China talks," said Dickie Wong, head of research at Kingston Securities. "The markets have already priced in much of the positives and there could be an 'anti-climax' development."

BULLISH MOMENTUM AT STAKE The stakes are particularly high given the breadth of this year's rally across Chinese markets. Investors will look past broad comments and scrutinise details that may come out after the meeting, otherwise reaction might be muted, analysts said.

The Shanghai benchmark has rallied nearly 20% this year, overturning the "uninvestable" narrative that had dominated global investor sentiment toward Chinese markets in recent years. Beyond mainland China stocks, Hong Kong's Hang Seng has surged over 30%, ranking it among the best performing markets globally.

Despite U.S. tariffs, Chinese exports to other parts of the world have remained resilient, while progress in China's adoption of artificial intelligence and its development of semiconductors and innovative drugs this year has also given comfort to global investors. Asian and global emerging markets funds made significant increases in their exposure to mainland China in September, HSBC said in a note on Monday, pointing out positioning in mainland China for Asia funds that HSBC tracks is near a 5-year high.

Still, some analysts caution that markets may be getting ahead of themselves with upside surprises already priced in. Previous trade negotiations have seen promising starts followed by setbacks.

LATEST EPISODE IN TRADE WAR SAGA The latest tit-for-tat escalations erupted earlier this month as Trump unveiled additional levies of 100% on China's U.S.-bound exports, along with new export controls on critical software by November 1, in a reprisal against China curbing its critical rare earth exports.

Trump said on Wednesday he expects to reduce U.S. tariffs on Chinese goods in exchange for Beijing's commitment to curb exports of fentanyl precursor chemicals. The U.S. could halve the 20% levies on Chinese goods it currently charges in retaliation for the export of such chemicals, the Wall Street Journal reported. "Both Washington and Beijing have strong incentives to pause the spiral of escalation," analysts at Alpine Macro said. "A limited, face-saving deal, with symbolic gestures and modest trade concessions, is the more probable outcome."

Partial tariff rollbacks may also do little to help loss-making Chinese exporters and manufacturers, or reverse weak consumer demand at home. "The U.S.-China trade truce is likely to be greeted as a relief rally rather than a structural reset," said Tareck Horchani, head of prime brokerage dealing at Maybank Securities.

"Overall, this looks like a tactical pause rather than a strategic breakthrough."