* China drops anti-dumping probe into U.S. sorghum imports
* Industrials gain as Sino-US trade talks progress
* Applied Materials' dour forecast weighs on chipmakers
* Campbell Soup's margin warning hits food companies
* Dow flat, S&P down 0.22 pct, Nasdaq drops 0.24 pct (Changes comment, adds details, updates prices)
By Medha Singh
May 18 (Reuters) - Wall Street edged lower on Friday, weighed down by bank and chip shares as well as a handful of tepid earnings reports, although losses were capped by gains in industrial stocks on signs of progress in Sino-U.S. trade talks.
China denied it had offered a package to slash the U.S. trade deficit by up to $200 billion, but dropped an anti-dumping probe into U.S. sorghum imports in a conciliatory gesture as top negotiators meet in Washington.
A Chinese foreign ministry spokesman said the consultations were "constructive" as the world's two biggest economies are seeking to bridge a divide on trade issues.
"There is still a concern around trade talks with China, but ... the stock market is cautiously optimistic that trade talks will lead to a good result," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.
The industrial sector jumped 0.53 percent, the most among the 11 major S&P sectors. Boeing, which sells about a quarter of its commercial aircraft to Chinese customers, rose 2.03 percent.
Also helping the industrials sector was Deere, which jumped 6.3 percent after the tractor maker raised its full-year earnings estimate.
Applied Materials dropped 8 percent after the chip gear maker's disappointing forecast renewed concerns over slowing smartphone demand.
The warning dragged down Philadelphia chipmaker index by 1 percent. Intel dropped 1.6 percent, and along with Applied Materials weighed the most on the S&P and the Nasdaq.
The financial sector dropped 0.79 percent, with traders citing a combination of a slight pullback in Treasury yields after a four-day rally and the uncertainty around trade talks, despite the progress being signaled.
JPMorgan, Citigroup and Bank of America fell between 1.2 percent and 2.2 percent.
At 12:57 a.m. EDT the Dow Jones Industrial Average was up 7.52 points, or 0.03 percent, at 24,721.50, kept afloat by Boeing and other industrial stocks.
The S&P 500 was down 5.99 points, or 0.22 percent, at 2,714.14 and the Nasdaq Composite was down 17.37 points, or 0.24 percent, at 7,365.11.
The industrial, materials and healthcare sectors were the only gainers among the 11 major S&P sectors.
Investors have been fretting about the impact of rising Treasury yields and commodity prices on corporate results, with the dollar hitting five-month highs also a source of concern.
Campbell Soup and tractor maker Deere joined a list of companies that blamed higher raw material and freight costs for a drop in profit margins.
Campbell fell 12.1 percent after cutting its full-year profit forecast, saying it expects higher costs to weigh on margins.
The warning also dragged down shares of General Mills , Kraft Heinz and other food companies.
Declining issues outnumbered advancers for a 1.03-to-1 ratio on the NYSE. Advancing issues outnumbered decliners by a 1.06-to-1 ratio on the Nasdaq.
The S&P index recorded eight new 52-week highs and five new lows, while the Nasdaq recorded 130 new highs and 23 new lows. (Reporting by Medha Singh in Bengaluru; Editing by Anil D'Silva)