Overall investor sentiment in Asia was gloomy ahead of the talks as Washington's sweeping criminal charges against Chinese telecom giant Huawei raised concerns the trade spat, which is hurting the global economy, could escalate.

The most traded iron ore on the Dalian Commodity Exchange rose as much as 1.6 percent to 562.5 yuan ($83.47) a tonne, before paring gains to close at 560.5 yuan, up 1.3 percent from Monday.

It hit a 16-month peak of 567.5 yuan on Monday after a tailings dam at a mine of top producer Vale SA collapsed, releasing mine waste that buried some of its mining facilities and killing dozens of people.

The disaster has created uncertainty for China's iron ore market at a time when demand from the South American supplier is rising, traders say.

"Although the mine in question only has a 7.8 million tonne iron ore capacity, the larger issue is whether Vale will be able to navigate a myriad of lawsuits and penalties, not to mention operational restraints that could be imposed on it," said INTL FCStone commodity consultant Edward Meir.

Vale is the world's top supplier of low-aluminium iron ore, preferred for its low impurity level by steel mills in top consumer China, which needs less-polluting grades of iron ore in its long-running anti-smog campaign.

Analysts said the price gains in iron ore are limited because there is not much demand in China at this time, as steel makers have finished restocking ahead of the Lunar New Year holiday early next month.

Darren Toh of Singapore-based steel and iron ore data analytics company Tivlon Technologies said Vale's mining operation is expected to slow down as safety inspections of its facilities will likely get tougher.

The most-active rebar contract on the Shanghai Futures Exchange fell nearly 1 percent to 3,675 yuan a tonne. Hot rolled coil was down 0.8 percent at 3,589 yuan.

Dalian coking coal dropped 1.2 percent to 1,209 yuan a tonne, while coke slipped 1.7 percent to 2,026 yuan.

"Market participants are de-risking their funds to avoid any swings caused by the noises coming out from the trade talks," Toh said.

The talks in Washington will take place after the U.S. Justice Department on Monday charged Huawei and its chief financial officer with conspiring to violate U.S. sanctions on Iran by doing business through a subsidiary it tried to hide.

(Reporting by Enrico dela Cruz; Editing by Gopakumar Warrier and Sherry Jacob-Phillips)

By Enrico Dela Cruz