US STOCKS-Wall St regains lost ground as trade optimism offsets bleak retail data

By Amy Caren Daniel and Shreyashi Sanyal

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* Retail sales post biggest drop in 9 years in Dec

* Coca-Cola drops on weak forecast, weighs on consumer staples

* Interest-rate sensitive financials fall

* Trade talks enter higher level in Beijing

* Dow off 0.16 pct, S&P dips 0.04 pct, Nasdaq up 0.29 pct (Updates to early afternoon)

By Amy Caren Daniel and Shreyashi Sanyal

Feb 14 (Reuters) - U.S. stocks recovered from declines triggered by bleak retail data to trade flat on Thursday, as investors focused on signs of progress in the ongoing U.S.-China trade talks.

A surprise 1.2 percent fall in retail sales in December, the largest drop since September 2009, suggested a sharp slowdown in economic activity at the end of 2018.

The data dragged down consumer staples as well as the financials sector, which was hit by a jump in expectations that the Federal Reserve would cut key lending rates by the end of the year.

"The data was much worse than expectations...It is creating a risk to outlook from some of these companies in more cyclical areas like retail," said Hugo Rogers, chief investment strategist at Deltec in Nassau, Bahamas.

The numbers came ahead of earnings from big box retailers such as Walmart Inc next week, and PepsiCo Inc due on Friday.

Coca-Cola Co tumbled 7.5 percent after the world's largest beverage company forecast slowing sales in 2019 and lower demand for its fizzy sodas in some markets. The drop also weighed on the S&P consumer staples, which declined 0.93 percent.

The U.S.-China trade talks entered a higher level in Beijing, with the top two U.S. negotiators scheduled to meet with Chinese President Xi Jinping on Friday. There has been no decision to extend a March 1 deadline for a deal, White House economic adviser Larry Kudlow said.

"Trade is a genuine concern for investors in the stock market, especially those investing in large caps because it's a roadblock to earnings," said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.

The technology sector rose 0.31 percent, helped by gains in Apple Inc, with chipmakers, which get a large portion of their revenue from China, also rising.

Meanwhile, the U.S. Congress is looking to end a dispute over border security on Thursday with legislation that would ignore President Donald Trump's request for funds to help build a border wall.

At 12:56 p.m. ET, the Dow Jones Industrial Average was down 40.24 points, or 0.16 percent, at 25,503.03. The S&P 500 was down 0.98 points, or 0.04 percent, at 2,752.05 and the Nasdaq Composite was up 21.89 points, or 0.29 percent, at 7,442.26.

Cisco Systems Inc rose 3.1 percent, after the network gear maker's earnings beat estimates, driven by strength in its newer applications and security businesses.

Marathon Oil Corp jumped 8.3 percent, the most among S&P companies, after the oil producer beat estimates for fourth-quarter profit.

Advancing issues outnumbered decliners by a 1.35-to-1 ratio on the NYSE and by a 1.35-to-1 ratio on the Nasdaq.

The S&P index recorded 16 new 52-week highs and one new lows, while the Nasdaq recorded 54 new highs and 21 new lows. (Reporting by Amy Caren Daniel in Bengaluru; Editing by Sriraj Kalluvila)