"China and the United States have been engaged in discussions regarding the possible resolution of issues relating to films in the China-audiovisual case," said Carol Guthrie, a spokeswoman for the U.S. Trade Representative's office.

She declined further comment because talks were ongoing.

U.S. government and industry officials say China's restrictions on American movies fuel demand for pirated DVDs of the films that are widely available in China.

The United States won what it described as a major victory at the World Trade Organization in 2009 against Chinese restrictions on the importation and distribution of films, DVDs, music, books and journals.

Xi, who is expected to become China's leader toward the end of this year and is known to be a fan of American movies, will finish his visit in Los Angeles -- the U.S. film capital -- after stops in Washington and Iowa.

The Center for Strategic and International Studies, a Washington think tank, mentioned possible progress on the nearly five-year-old trade spat in a briefing note on Xi's visit.

An agreement would help Obama's standing with the American film industry after his administration effectively pulled the plug on legislation this year to crack down on online movie piracy because Internet companies complained it was heavy-handed.

Christopher Dodd, a former senator and ally of Obama who is now president of the Motion Picture Association of America, called China "one of the most restrictive markets in the world for the U.S. entertainment industry" in a submission in October to the U.S. Trade Representative's offices.

He complained China continues to allow entry of no more than 20 revenue-sharing foreign films each year, while at the same time "being one of the worst offenders in failing to provide adequate protection to copyrighted audio-visual works."

The United States did not challenge the film quota in the case first brought by the administration of former President George W. Bush since the limit on 20 revenue-sharing films was allowed under Beijing's entry into the WTO in 2001.

Previously, China permitted a maximum of 10 films.

Instead, the WTO case focused on Chinese laws that prohibit foreign companies and individuals from importing and distributing certain copyright-protected material such as books, DVDs, music recordings and theatrical films.

(Reporting By Doug Palmer; Editing by Sandra Maler)

• A Permanent Economic Emergency