European stocks retreat on trade war fears

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Saying it would be the "first of many" trade actions, Trump signed the order that also will look at restrictions on Chinese investment in the US.

"We have a tremendous intellectual property theft situation going on," Trump said.

New York's blue-chip Dow was down 1.4 per cent in midday trading before Trump made the formal announcement. Europe's main indices closed the day with similar losses.

"Dealers are worried this could be the first shot fired in a trade war between the two largest economies in the world," said market analyst David Madden at CMC Markets UK.

The move will likely further strain tensions with Beijing after the White House unveiled controversial tariffs on imports of steel and aluminium, which sparked fury from world leaders.

China has vowed to respond with "necessary measures to resolutely defend its legitimate rights and interests".

Meanwhile a senior US official Trump would grant Europe and half a dozen other countries a last-minute exemption from punishing metals tariffs, although European leaders were waiting for the official announcement by a US president known to make last minute changes. China and Russia were not among the countries named.

"Fresh tariffs from the Trump administration has put a global trade war right at the centre of market psyche," said Jasper Lawler, head of research at London Capital Group.

"Investors are preparing for the worst, namely a tit-for-tat reaction from China and the negative consequences it could have for the free flow of goods and services," he added.

TRADE WAR UNDERMINES GROWTH

"A trade war damages the idea of synchronised global growth in 2018. That was central to the bullish thesis for markets this year."

London's FTSE 100 index shed 1.2 per cent, while in Paris the CAC 40 dropped 1.4 per cent and the DAX 30 in Frankfurt fell 1.7 per cent.

Meanwhile, signs that the Federal Reserve will hasten its rate hike pace next year also weighed down equity markets, as did a perceived tighter bias at the Bank of England, traders said.

On Wednesday, the Federal Reserve raised the key lending rate for the first time this year, citing a stronger outlook for economic growth, and hinted at a slightly more aggressive pace for hikes in 2019.

Higher interest rates tend to weigh on stock markets because they increase loan repayments and therefore tend to bite into the bottom line - and reduce consumers' disposable incomes.

"Powell delivered the rate hike markets expected, but a more hawkish tone hints heavily at an increasingly aggressive rate tightening cycle, if not this year then certainly in 2019," noted analyst Lee Wild at Interactive Investor.

The Bank of England left its leading interest rates unchanged, but two of the nine monetary policy committee members voted against that decision, which pointed to "a slightly more hawkish tone", Accendo's van Dulken said.

Earlier, the data monitoring firm Markit reported that growth in eurozone business activity was at its slowest rate for over a year in March in its purchasing managers' index (PMI), pointing to the economic recovery in the single currency area's losing momentum.

Key figures around 1630 GMT:

New York - Dow: DOWN 1.4 per cent at 24,334.16

London - FTSE 100: DOWN 1.2 per cent at 6,952.59 points (close)

Frankfurt - DAX 30: DOWN 1.7 per cent at 12,100.08 (close)

Paris - CAC 40: DOWN 1.4 per cent at 5,167.21 (close)

EURO STOXX 50: DOWN 1.7 per cent at 3,342.27

Tokyo - Nikkei 225: UP 1.0 per cent at 21,591.99 (close)

Hong Kong - Hang Seng: DOWN 1.1 per cent at 31,071.05 (close)

Euro/dollar: DOWN at US$1.2316 from US$1.2338 at 2100 GMT

Pound/dollar: DOWN at US$1.4104 from US$1.4141

Dollar/yen: UP at 106.26 yen from 106.05 yen

Oil - Brent North Sea: DOWN 32 cents at US$69.15 per barrel

Oil - West Texas Intermediate: DOWN 55 cents at US$64.62 per barrel