Revived trade war fears weighed on US and European bourses Friday following tit-for-tat tariff announcements by the United States and China.
US President Donald Trump announced 25% tariffs on tens of billions in Chinese imports, sparking immediate retaliation from Beijing and bringing the world's two largest economies to the brink of an all-out trade war long feared by markets and industry.
"There remains a substantial risk of escalation and a more prolonged dispute that lasts through the summer and into the fall," said a note from Eurasia Group.
Wall Street stocks opened the session solidly lower following Trump's decision before recovering some of the losses. The Nasdaq still ended down 0.2%, retreating from Thursday's record. The Dow and S&P 500 also ended lower.
Trump's action follows weeks of back and forth between Washington and Beijing that have veered in tone from conciliatory to hostile and left observers unsure of the likelihood of a trade war that could bruise global growth.
"In the on again-off again discussion about the menacing specter of a trade war, things are on again this morning," said Briefing.com analyst Patrick O'Hare.
"It's hard to know if this is just a big game of political chicken that will get resolved without anyone getting permanently hurt or if it is the start of something bigger that will create some real economic damage," he added.
Earlier, European stocks had also fallen, with Paris shedding 0.5% and Frankfurt 0.7%.
The euro rallied somewhat after falling sharply on Thursday's European Central Bank announcement that it would keep interest rates down for longer-than-expected.
Oil prices, meanwhile, fell sharply a week before a crunch meeting of OPEC and its allies who are to decide whether to extend a production cut agreement that has been in force since late 2016.
"Reality seems to be setting in a bit regarding OPEC's looming production increase," said a note from BMO Capital Markets. "The market has already begun pricing it in perhaps and therefore we saw a healthy sell-off today."
Analysts also attributed the oil market's pullback in part to worries over a trade war.
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