The United States and China are in the middle of a costly trade war that has pressured financial markets and damaged the world economy. Talks between the two sides to reach a broad deal broke down last month and interaction since then has been limited.

Trump has made no secret that, despite his threat to escalate the dispute with more U.S. tariffs on Chinese goods, he would like to meet with Xi at the Group of 20 meeting in Japan next week.

Though he has repeatedly said the two parties would talk, the Chinese side has not confirmed a meeting would take place.

In a Twitter post, Trump said he and his Chinese counterpart had agreed to start preparations during a phone call.

"Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting," Trump tweeted.

Chinese state media said Xi agreed to the meeting and emphasized in the call that economic and trade disputes should be solved through dialogue.

“The key is to show consideration to each other's legitimate concerns,” Xi said. “We also hope that the United States treats Chinese companies fairly. I agree that the economic and trade teams of the two countries will maintain communication on how to resolve differences.”

The confirmation of a meeting avoids the possibility of a snub to Washington that could have triggered another round of tariffs.

Stocks extended gains after the tweet, with the Dow and S&P up more than 1%, as investors bet new talks could ease trade tensions between the world’s two biggest economies.

“This is a very positive development," said Clete Willems, a trade negotiator with Trump's team, who cited the importance of a meeting between Xi and the U.S. president at the last G20 in Argentina.

"Leader level engagement at last year’s G20 was critical to jumpstarting the talks. It will be essential to managing the current political dynamic and getting the talks back on track once again.”

Washington has already imposed 25% tariffs on $250 billion of Chinese goods, ranging from semi-conductors to furniture, that are imported to the United States.

Trump has threatened to put tariffs on another $325 billion of goods, covering nearly all of the remaining Chinese imports into the United States, including products such as cell phones, computers and clothing.

REUTERS