US and European stocks tumbled Thursday on revived trade war fears as US President Donald Trump unveiled tariffs of up to $60 billion on Chinese imports.
The Dow alone plunged more than 700 points, sinking nearly three percent 23,957.89 following a rocky session that saw shares of major exporters such as Boeing and Caterpillar dive more than five percent.
European stocks also retreated as Trump unveiled his plan, with London, Paris and Frankfurt all losing more than one percent.
China has vowed to defend its interests and urged the US to "cease and desist" from endangering trade relations, setting the stage for a potential dreaded tit-for-tat conflict that analysts fear could harm both countries as well as the global economy.
"Dealers are worried this could be the first shot fired in a trade war between the two largest economies in the world," said market analyst David Madden at CMC Markets UK.
"The stakes have been raised, especially now that it appears that President Trump is singling out China," said Jack Ablin, chief investment officer at Cresset Wealth Advisors.
"Considering China is one of the largest purchasers of US Treasuries, that has sent shivers across the stock and bond markets."
Some analysts suggested fears over a trade war have blown out of proportion. Oxford Economics in a note pointed to Trump's policy of temporarily exempting Canada and Mexico and others.
"We seem to be discerning a trend whereby the president makes grandiose announcements to get parties to the negotiation table, but then curbs the trade restrictions significantly," said Oxford Economics head of US economics Gregory Daco.
With China, "we believe the consequences of following through on these threats could be significant," Daco said.
"However, in light of the steel/aluminum tariffs saga, the frontal attack may simply be the administration's way of getting other parties to the negotiation table."
- Mueller probe weighs -
Analysts also cited other factors behind Thursday's big drop, including unease over Federal Reserve's plans to raise interest rates under new chairman Jerome Powell, and worries that a data scandal involving Facebook could spur heavy-handed regulation of the fast-growing technology sector.
Investors also took note of news of the departure of John Dowd, a top lawyer on Trump's team in the Russia investigation led by special counsel Robert Mueller.
The Mueller investigation "went from being noise to being a market driver when Mueller subpoenaed the Trump organization documents," said Art Hogan, chief market strategist at Wunderlich Securities, who described the subpoena as a "red line" for the market.
"Now we've crossed a red line… and mix into that narrative the fact that you have the legal team for Trump moving around a little bit," Hogan said. "There's concern."
The upheaval in Trump's legal team is "another factor suggesting instability in the White House and I think that's also problematic," said Ablin.
- Key figures around 2100 GMT -
New York - Dow: DOWN 2.9 percent at 23,957.89 (close)
New York - S&P 500: DOWN 2.5 percent at 2,643.69 (close)
New York - Nasdaq: DOWN 2.4 percent at 7,166.68 (close)
London - FTSE 100: DOWN 1.2 percent at 6,952.59 (close)
Frankfurt - DAX 30: DOWN 1.7 percent at 12,100.08 (close)
Paris - CAC 40: DOWN 1.4 percent at 5,167.21 (close)
EURO STOXX 50: DOWN 1.7 percent at 3,342.21 (close)
Tokyo - Nikkei 225: UP 1.0 percent at 21,591.99 (close)
Hong Kong - Hang Seng: DOWN 1.1 percent at 31,071.05 (close)
Euro/dollar: DOWN at $1.2308 from $1.2338 at 2100 GMT
Pound/dollar: DOWN at $1.4103 from $1.4141
Dollar/yen: UP at 105.35 yen from 106.05 yen
Oil - Brent North Sea: DOWN 56 cents at $68.91 per barrel
Oil - West Texas Intermediate: DOWN 87 cents at $64.30 per barrel