Stock markets headed south yesterday as investors took fright at news that Washington was set to announce a new round of tariffs on Chinese goods in the latest escalation of their trade conflict.

US President Donald Trump’s expected announcement of new tariffs on $200 billion in Chinese goods drew an immediate threat of reprisals from Beijing.

The growing trade conflict between the world’s two largest economies has long unnerved investors who fear an escalation could eventually whack global growth, while talks between the two countries have failed to make much headway.

The pan-European STOXX 600 index fell as much as 0.2 per cent, while Germany’s DAX, home to large exporters and carmakers, dropped half a percent. France’s CAC 40 and Britain’s FTSE 100 each fell 0.3 per cent.

Last week, Europe’s STOXX 600 had enjoyed its best weekly gain since July as the Turkish central bank’s interest rate rise brought a broad relief rally, but the mood was less buoyant on Monday.

The falls in Europe followed weakness across Asian markets. MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1.2 per cent, snapping three straight sessions of gains.

The MSCI world equity index, which tracks shares in 47 countries, remains more than five per cent off its record high touched in January, and down 0.8 per cent in September.

The S&P 500 e-minis fell 0.1 per cent, indicating Wall Street would open slightly weaker.

Analysts doubted whether the United States would slap 25 per cent tariffs on $200 billion of Chinese imports, as the Trump administration has said it is considering, and the Wall Street Journal reported the tariff level would probably be about 10 per cent.

Market watchers reckon further escalation is likely, although some investors think Mr Trump’s tariff threats are largely rhetoric aimed at a domestic audience before the mid-term elections in November. They expect tensions to ease once the vote is out of the way.

The dollar fell yesterday, suggesting investor nervousness was limited. The greenback tends to firm during bouts of trade tension as investors seek safety in the world’s most liquid currency.

The greenback index slipped 0.2 per cent at 94.725, having bounced from a low of 94.359 at the end of last week as Treasury yields rose.

The euro added 0.3 per cent to $1.1659 and the yen strengthened 0.1 per cent to below 111, with broader exchange moves limited.

Oil prices rebounded from earlier losses despite assurances from Washington that Saudi Arabia, Russia and the United States can raise output fast enough to offset falling supplies from Iran and elsewhere.

Brent crude oil rose 0.78 per cent to $78.70 a barrel. US light crude was up 0.75 per cent at $69.51.