European markets sink due to trade war fears

European equities markets were in the red Thursday as trade war fears ratcheted higher after the United States said it was looking at more than doubling threatened tariffs on a range of Chinese imports.

In London, investors held their breath ahead of a key Bank of England monetary policy announcement at 1100 GMT.

The BoE is widely expected to raise its main borrowing rate by a quarter-point to 0.75 per cent. That would just be the second hike since the global financial crisis, taking the interest rate to its highest level in nearly a decade.

More broadly, European markets followed in the footsteps of Asian trading floors, which sank after the US administration confirmed it was considering hiking levies to 25 per cent from the announced 10 per cent on $200 billion of Chinese goods.

Should the US follow through, it would be "a considerable step-up in the trade dispute between US and China and would start to seriously threaten global growth", wrote Konstantinos Anthis, head of research at ADSS.

Hussein Sayed, chief market strategist at FXTM, said investors were now waiting to see how China will react to prevent further falls in the markets.

"It will be interesting to see whether China will start using a more dangerous weapon against the US and selling large portions of the $1.2 trillion of Treasury Bonds it currently holds," Sayed wrote.

"If China uses this weapon, we will see panic selling in the US and global equities, but it seems Chinese authorities are preserving this move for later."

In Germany, the DAX blue chip index sank over 1.7 per cent in mid-morning trading, with analysts blaming US tariff threats that would hit car manufacturers especially hard.

Aside from the threatened duties on Chinese imports, president Donald Trump has also warned the US may impose hefty tariffs on cars imported from the European Union, after already imposing steel and aluminium levies.

- Hike or no hike? -

Investors were also waiting for the BoE's imminent interest rate announcement, with analysts overwhelmingly predicting a hike to levels unseen in nearly a decade.

"Although the UK's economy recovered slightly from the first quarter, Brexit-related uncertainty has increased significantly. This makes today's decision a tough one," Sayed of FXTM said.

Craig Erlam, senior market analyst at OANDA, added: "Whichever way the central bank goes -- and just to be clear, I think they will raise rates -- there could be a very interesting response in the markets."

The BoE's decision comes a day after the US Federal Reserve held its fire on interest rates, even as it highlighted the strength of the US economy and labour markets, indicating rate hikes ahead.

On currency markets, the pound was virtually unchanged against the dollar ahead of the BoE meeting.

But the dollar weakened against the safe haven yen despite the Federal Reserve indicating it would hike borrowing costs next month.

- Key figures at 0930 GMT -

London - FTSE 100: DOWN 1.0 per cent at 7,573.80 points

Frankfurt - DAX 30: DOWN 1.8 per cent at 12,511.49

Paris - CAC 40: DOWN 0.8 per cent at 5,456.61

EURO STOXX 50: DOWN 1.0 per cent at 3,117.45

Tokyo - Nikkei 225: DOWN 1.0 per cent at 22,512.53 (close)

Hong Kong - Hang Seng: DOWN 2.2 per cent at 27,714.56 (close)

Shanghai - Composite: DOWN 2.0 per cent at 2,768.02 (close)

New York - Dow Jones: DOWN 0.3 per cent at 25,333.82 (close)

Euro/dollar: DOWN at $1.1613 from $1.1659 at 2030 GMT

Pound/dollar: DOWN at $1.3075 from $1.3124

Dollar/yen: DOWN at 111.63 yen from 111.86 yen

Oil - West Texas Intermediate: DOWN 14 cents at $67.52 per barrel

Oil - Brent Crude: DOWN one cent at $72.38 per barrel