European Stocks Drop on Fears of New Trade War Escalation

European and U.S. stock markets slid Tuesday on fears of a new escalation in the burgeoning trade war between China and the United States, dealers said.

In afternoon trading Frankfurt equities fell 0.7 percent and Paris shed 0.5 percent. Meanwhile London lost 0. percent despite data showing that Britain's unemployment rate held at a 43-year low of 4.0 percent.

"The European indices took a tumble after it was reported that China is seeking permission from the World Trade Organization to impose sanctions on the United States, relating to America's non-compliance with a dumping duties ruling tracing back to 2013," said Spreadex analyst Connor Campbell.

"This news immediately sparked fears that the next round of trade war escalation is not far off."

The WTO said Tuesday that a special meeting of its Dispute Settlement Body would be convened on September 21 to discuss developments in a five-year-old trade dispute between the world's top two economies.

Wall Street followed European exchanges lower, with the Dow sliding 0.3 percent in the first minute of trading.

"Presumably, market participants are feeling a little anxious about the brewing trade tensions between the U.S. and China," said analyst Patrick O'Hare at Briefing.com in a note before the opening bell.

President Donald Trump had already ramped up the China-U.S. tariffs row late last week by threatening to tax all imports from the Asian giant, sending equities further into the red on Monday.

While some investors are returning to pick up bargain stocks, ongoing worry about a possible full-blown trade war between the world's top two economies is keeping a lid on prices.

The WTO case dates back to December 2013, when China filed a dispute against the United States, taking issue with the way Washington assesses whether exports have been "dumped" at unfairly low prices onto the U.S. market.

According to WTO rules, the plaintiff in such cases can request permission to impose sanctions if the parties have not reached agreement on satisfactory compensation within 20 days of the WTO deadline. 

Washington will nonetheless still have the right to oppose any sanction decision, opening the way for a lengthy arbitration process that could take months to settle.

Asian investors meanwhile trod uneasily on Tuesday as concerns over trade and emerging markets also dragged on confidence.

Hong Kong fell 0.7 percent and is now more than 20 percent from its record touched in January, putting it in a bear market. Shanghai ended down 0.2 percent around lows not seen since January 2016.

However, Tokyo rose 1.3 percent as exporters were supported by a weaker yen.

Dealers are also awaiting developments in Argentina, which is holding talks with the International Monetary Fund on accessing bailout cash as it looks to avert an all-out crisis.

The country's troubles, along with worries in Turkey and South Africa, have led to concerns of contagion in other emerging markets or even the global economy.

- Key figures around 1330 GMT -

New York - Dow: DOWN 0.3 percent at 25,784.96 points

London - FTSE 100: DOWN 0.6 percent at 7,239.52

Frankfurt - DAX 30: DOWN 0.7 percent at 11,904.50

Paris - CAC 40: DOWN 0.5 percent at 5,244.64

EURO STOXX 50: DOWN 0.6 percent at 3,290.48

Tokyo - Nikkei 225: UP 1.3 percent at 22,664.69 (close)

Hong Kong - Hang Seng: DOWN 0.7 percent at 26,422.55 (close)

Shanghai - Composite: DOWN 0.2 percent at 2,664.80 (close)

Euro/dollar: DOWN at $1.1585 from $1.1594 at 2100 GMT

Pound/dollar: DOWN at $1.2990 from $1.3027

Dollar/yen: UP at 111.42 yen from 111.13 yen

Oil - Brent Crude: UP 33 cents at $77.70 per barrel

Oil - West Texas Intermediate: UP 16 cents at $67.70