'The Chinese government has indicated that it will accept Mr Chen's applications for appropriate travel documents,' US State Department spokeswoman Victoria Nuland said, adding that Chen had been offered a fellowship by a US university, and could be accompanied by his wife and two children.

Foreign Ministry spokesman Liu Weimin said yesterday that Chen might apply to study abroadaccording to the legal requirements of relevant departments and through the same channels as other Chinese citizens.

Both sides appeared eager to play down the impact of the Chen saga, which started when he fled illegal house arrest in Shandong on April 22. It escalated when he found refuge in the US embassy in Beijing and reached fever pitch when he left the embassy - only to renounce a deal with the central government.

Deputy Foreign Minister Cui Tiankai said Chen was not on the agenda for the talks, and human rights should not affect Sino-US ties.

Among the economic agreements reached yesterday was China's pledge to step up structural tax reduction policies, increase the dividend payout ratio of state-owned enterprises, amend regulations to allow foreign investors to hold up to a 49 per cent equity stake in securities joint ventures and provide fair treatment to foreign investors.

Beijing also agreed to expand access to its car insurance market and to negotiate guidelines to regulate export credits.

The US will facilitate the export of civilian hi-tech exports to China and the inclusion of the yuan in the special drawing rights basket of the International Monetary Fund when it meets the criteria, and will streamline approval procedures for Chinese banks conducting business in the US.

The two sides also agreed to a human rights dialogue in Washington next month, to consult on Middle East and Asia-Pacific affairs, and to communicate closely on the conflict between Sudan and South Sudan. There will also be a vice-ministerial-level strategic security dialogue.

Co-operation in the areas of law enforcement and climate change will also be stepped up.

President Hu Jintao hailed 'the positive results' and appreciated the 'excellent work' of both sides, Xinhua reported.

'This dialogue is full of achievement, and I can say they are rich achievements. There are even some major breakthroughs,' Wen said in a meeting with US Secretary of State Hillary Rodham Clinton and Treasury Secretary Tim Geithner.

Clinton said the relationship was 'stronger than it's ever been' and should not be derailed by human rights concerns.

'The US and China are trying to do something that is historically unprecedented. To write a new answer to the age-old question of what happens when an established power and a rising power meet,' she said.

In a briefing after the talks, Clinton said she was encouraged by the Chinese statement that Chen could study abroad. 'But let me also add, this is not just about a well-known activist. It's about the human rights and aspirations of more than a billion people here in China and billions more around the world. And it's about the future of this great nation, and all nations,' she said.

Shi Yinhong, a US affairs expert at Renmin University, said both countries had tried to avoid letting Chen's case affect the outcome of the talks. Shi said allowing Chen to study abroad was the easiest option to settle the controversy.

'If Chen remained in China, then the US and Chen himself could someday say his safety was under threat, and this could trouble Beijing,' he said. 'The solution reached ... could prevent the case from furthering harming bilateral ties.'

On a separate front, the two countries will also hold talks on military exchanges in the United States, with Defence Minister Liang Guanglie leaving for the US yesterday.