(Adds comment, details, updates prices)
* Focus on U.S.-China trade talks
* Loxo Oncology soars on $8 bln buyout offer from Eli Lilly (NYSE:LLY)
* PG&E shares slump after reports of exploring bankruptcy
* Indexes: Dow slightly lower, S&P and Nasdaq edged higher
By Sruthi Shankar
Jan 7 (Reuters) - U.S. stocks treaded water on Monday as investors turned wary of the latest round of U.S.-China trade talks and a prolonged government shutdown, halting Wall Street's strong surge from Friday.
The struggle for direction comes after the three major indexes rallied more than 3 percent on Friday following strong U.S. jobs data and Federal Reserve Chair Jerome Powell said the central bank was not on a preset interest rate-hike path. of the 11 major S&P sectors were lower, led by a 1 percent drop in utilities .SPLRCU .
The gainers were led by a 1.04 percent jump in consumer discretionary stocks .SPLRCD , driven by Amazon.com Inc AMZN.O and Netflix Inc NFLX.O .
China and the United States kicked off talks in Beijing on Monday in the first face-to-face meeting since Presidents Donald Trump and Xi Jinping in December agreed to a 90-day truce in the trade war to help strike a deal. ominous signs the trade war was taking a toll on U.S. growth, including Apple's sales warning and weak factory activity data, investors are worried that corporate profits could take a bigger hit than anticipated.
"Trade has been one of the big factors, along with the budget stalemate, contributing to the climate of fear that we're seeing," said Scott Brown, chief economist at Raymond (NS:RYMD) James in St. Petersburg, Florida.
"We've been through this (trade talks) so many times that you'd wonder when the market would get desensitized to it."
U.S. Commerce Secretary Wilbur Ross said on Monday the two countries were likely to reach a good settlement over immediate trade issues while an agreement on structural trade issues and enforcement will be harder. U.S. federal government shutdown entered its third week, with the White House chief of staff saying it could "drag on a lot longer". 10:03 a.m. ET, the S&P 500 .SPX was up 3.35 points, or 0.13 percent, at 2,535.29 and the Nasdaq Composite .IXIC was up 26.11 points, or 0.39 percent, at 6,764.96.
The Dow Jones Industrial Average .DJI edged lower by 0.15 percent to 23,397.49 points, weighed down by a drop in trade-sensitive names such as Boeing (NYSE:BA) Co BA.N , Caterpillar Inc (NYSE:CAT) CAT.N and 3M (NYSE:MMM) Co MMM.N .
PG&E Corp PCG.N slumped 20.6 percent after Reuters reported that the California utility was exploring filing some or all of its business for bankruptcy protection as it faces billions of dollars in liabilities related to fatal wildfires in 2018 and 2017. Tree Inc DLTR.O jumped 4.3 percent after activist investor Starboard Value LP called on the company to sell its underperforming Family Dollar business and proposed replacing a majority of its board. Oncology Inc LOXO.O surged 67.0 percent after Eli Lilly and Co LLY.N said it would buy the cancer drug developer for about $8 billion. Lilly fell 1.2 percent. issues outnumbered decliners by a 2.08-to-1 ratio on the NYSE and a 1.96-to-1 ratio on the Nasdaq.
The S&P index recorded no new 52-week highs or lows, while the Nasdaq recorded 13 new highs and six new lows.