AMERICAN business leaders yesterday said they remained cautiously optimistic that the war of words between Washington and Beijing would end with China's Most Favoured Nation (MFN) trading status being renewed. But they warned that the risk of failure had increased and that competitors could make up the shortfall if United States companies lost out in multibillion dollar trade deals. John Kamm, chairman of Market Access, a public relations consultancy, said: ''While I am still not prepared to state MFN will be revoked, the chances have increased.'' The Hong Kong stock market fell 181 points during early trading on growing fears that the talks had reached an impasse, but it rallied during the afternoon session. The US Administration has linked renewal of MFN, which has to take place by June 3, to an improvement in China's human rights record. The disagreement between Chinese leaders and American Secretary of State Warren Christopher during weekend talks in Beijing has aggravated the tension. MFN allows China to export to the US on the same favourable terms as most of its other trading partners. Mr Kamm said before the weekend's talks he believed China had a 90 per cent chance of winning MFN, but that now the odds were closer to even. Last month he testified before the influential US Congress' House of Representatives Ways and Means Committee during hearings on MFN. Analysts estimate that about 200,000 American jobs are directly linked to trade with China, particularly in the aerospace and telecommunications sectors. Mr Kamm said: ''It was quite clear to me that people in Washington were trying to find a way to put this annual debate behind us.'' He said about 96 per cent of Chinese exports to the US would be hit by the revocation of MFN, with punitive tariffs of up to 70 per cent being imposed. ''If the US loses the Chinese market, then business lobbies for other countries will use it to good effect.'' Analysts estimate that about 20 per cent of the present US$40 billion trade flow between the two countries could be at risk. The imposition of punitive tariffs will also hurt Hong Kong because about 70 per cent of Chinese exports flow through the territory. Tom Gorman, managing director of CCI Asia Pacific, a trade and technical magazine publisher, and vice-president of the American Chamber of Commerce, said: ''While it is still too early to tell the outcome, we remain cautiously optimistic. It is not slowing business but adding a further degree of uncertainty, which has to effect medium-term planning. This certainly creates an indirect cost for companies.'' Other senior businessmen said US business had become ''used to and is exceedingly weary of the volatility'' caused by the annual row over MFN. Etienne Reuter, chief representative of the European Union in Hong Kong, said: ''The EU is concerned that a non-renewal of MFN is likely to lead to the isolation of China and that may have implications for the country's application to rejoin GATT. ''If one of the world's big trading partners is being excluded, it will be alarming for the whole system.'' He said EU companies would also be affected if MFN was not renewed because many had investments in China either through joint ventures or manufacturing plants. The Australian Chamber of Commerce said it was also deeply concerned with the latest row between the US and China. Last year, Australia was among the top six investors in China. In 1992, Australian companies had investments of about $1.2 billion in China. According to director Peter Chan, Australian firms have set up plants in southern China and Shanghai in industries ranging from textiles to chemicals. He said a significant number of the products were re-exported through Hong Kong to the US.