World stocks shaken by tariff dispute

European and Asian markets fell Monday, shaken by news of a trade dispute between the U.S. and China over tariffs on tires.

European and Asian markets fell Monday, shaken by news of a trade dispute between the U.S. and China over tariffs on tires.

Germany's DAX fell 1.4 per cent to 5,544.71 and Britain's FTSE 100 lost one per cent at 4,962.90. France's CAC-40 shed 1.4 per cent to 3,683.72.

Asian indexes lost as much as two per cent and Wall Street was expected to fall later. Dow industrials futures were down 81 points at 9,450.00 and Standard & Poor's 500 futures slipped 9.90 points to 1,027.40.

The U.S. decision to impose trade penalties on Chinese tires infuriated Beijing, which condemned the move as protectionist and said it violated global trade rules.

Crucially, the dispute suggests international economic co-operation is weak ahead of the G-20 summit of rich and developing nations later this month in Pittsburgh. With U.S.-Chinese trade a key link in the global economy, investors were spooked by the potential repercussions.

Chen Deming, China's minister of commerce, said the penalties would hurt relations with the U.S. A ministry statement said President Barack Obama had given in to "U.S. domestic trade protectionism."

'Not buoying spirits'

"Part of the reversal in the dollar and equity markets may simply reflect profit taking, but early signs of a new trade conflict between the U.S. and China are not buoying spirits regarding the global outlook," said Daragh Maher, analyst at Calyon.

Also hurting sentiment outside the U.S. was the dollar's recent drop against world currencies like the yen, the pound and the euro — against which it hit a yearly low last week. That has hurt confidence in companies in export-heavy European and Asian economies.

A slump in commodity prices weighed on mining stocks, with Anglo American down 2.9 per cent and BHP Billiton down three per cent, while a drop in euro zone industrial production data reminded markets that manufacturers are not yet out of the woods.

Industrial output in the euro area fell 0.3 per cent in July compared to June, which "shows that while the wider economy has probably returned to positive growth in the third quarter, the recovery will not be particularly strong," said Ben May, economist at Capital Economics.

In Asia, Japan's Nikkei 225 index took the day's biggest hit, falling 242.27 points, or 2.3 per cent, to 10,202.06. Toyota, the world's largest car company, lost 2.6 per cent, electronics giant Canon was off 3.4 per cent and Sony dropped 2.4 per cent.

Hong Kong's Hang Seng closed down 1.1 per cent at 20,932.20 while Korea's Kospi shed one per cent to 1,634.91. Australia's key index lost 1.4 per cent, India's Sensex was down 0.5 per cent and Taiwan's benchmark fell 1.1 per cent.

Shanghai's market defied the downswing, adding 1.2 per cent to 3,026.74.