Stock markets take cover as Trump trade fears escalate

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Frightened by Trump's trade tactics, investors are walking away from risky positions

Frightened by Trump's trade tactics, investors are walking away from risky positions (AFP Photo/HECTOR RETAMAL)

Global equity investors ran for cover on Tuesday, fearing this week's hoped-for end to the US-China trade war could instead see an drastic escalation.

Major stock indices had already slumped on Monday, with Shanghai suffering its heaviest loss in three years, after Trump vowed Sunday to hike tariffs on $200 billion in Chinese imports this week amid apparent setbacks in trade talks between the economic superpowers.

Earlier, markets had grown accustomed to viewing Trump's trade brinkmanship as a bargaining tactic. Still, Tuesday's pullback suggested some fear the latest back-and-forth could pose a more serious obstacle.

"The new tariffs have caught the market off guard," said Quincy Krosby, chief market strategist of Prudential Financial. "The question becomes, What will the Chinese do?"

Trump's remarks wrong-footed markets, coming after months during which officials on both sides had projected cautious optimism.

"Say what you want about the US president... but predictability and subtlety were never part of his election pledges," OANDA senior market analyst Jeffrey Halley said.

Wall Street's Dow Jones Industrial Average fell nearly 500 points and European stocks were down by more than 1.5 percent at the close -- with a growth outlook downgrade for the eurozone not helping matters.

Earlier, Shanghai's index recovered slightly, having lost a whopping 5.6 percent the previous session but Tokyo slumped further.

- Forex market jitters -

International Monetary Fund chief Christine Lagarde also warned Tuesday that US-China tensions were a "threat" to the world economy.

On currency markets, the yuan stabilized after Monday's hammering, though most other higher-yielding, riskier units managed to claw back some of their losses.

But not the Turkish lira, which slipped back into crisis mode with a heavy fall before rebounding somewhat.

The lira "has come back onto investors' radars... triggered by election shenanigans in the country," said Fiona Cincotta, senior market analyst at City Index traders.

Turkish President Recep Tayyip Erdogan on Tuesday welcomed an order to re-run the recent Istanbul election, a move the opposition has branded an attack on democracy.

His ruling Justice and Development Party lost the mayoralty of Turkey's biggest city by a narrow margin and refused to accept defeat in March.

- Key figures around 2100 GMT -

New York - Dow: DOWN 1.8 percent at 25,965.09 (close)

New York - S&P 500: DOWN 1.7 percent at 2,884,05 (close)

New York - Nasdaq: DOWN 2.0 percent at 7,963.76 (close)

London - FTSE 100: DOWN 1.6 percent at 7,260.47 points (close)

Frankfurt - DAX 30: DOWN 1.6 percent at 12,092.74 (close)

Paris - CAC 40: DOWN 1.6 percent at 5,395.75 (close)

EURO STOXX 50: DOWN 1.8 percent at 3,401.16 (close)

Tokyo - Nikkei 225: DOWN 1.5 percent at 21,923.72 (close)

Hong Kong - Hang Seng: UP 0.5 percent at 29,363.02 (close)

Shanghai - Composite: UP 0.7 percent at 2,926.39 (close)

Euro/dollar: DOWN at $1.1192 from $1.1199 at 2050 GMT

Pound/dollar: DOWN at $1.3072 from $1.3097

Dollar/yen: DOWN at 110.26 yen from 110.87 yen

Oil - Brent Crude: DOWN $1.36 at $69.88 per barrel

Oil - West Texas Intermediate: DOWN 85 cents at $61.40 per barrel