European shares fell on Wednesday as the rollout of steep U.S. retaliatory tariffs deepened fears over trade war-driven economic damage, spilling over into bond markets.
The pan-European STOXX 600 slumped 2.4% at 0749 GMT, as the previous session's rally fizzled out. The trade-sensitive Germany's benchmark index fell 1.7%.
The STOXX 600 is currently about 15.5% below its all-time closing high and nearing the 20% threshold that would confirm a bear market.
Rate-sensitive banks slumped 1.4% as traders fully priced in an interest rate cut from the European Central Bank next week to shore up the deteriorating economy.
Chances of a quarter point rate reduction next week stood at 85% on Tuesday.
U.S. President Donald Trump’s reciprocal tariffs, including a 20% levy on select European Union goods, took effect on Wednesday, with the 27-member bloc set to vote on initial counter-measures later in the day.
China has vowed to fight what it views as blackmail.
"China's not going to back down so yes, it is going to lead to further escalation," said Axel Rudolph, senior technical analyst at IG Group.
"I don't think that the volatility is anywhere near over. I think that we may well be just at the beginning of a major bear market," Rudolph said.
German finance minister Joerg Kukies said Europe's largest economy is at risk of another recession as a result of trade tensions. The euro zone is already struggling with recent hikes on autos and metals levies.
Investors also dumped U.S. government bonds.
Germany's Redcare Pharmacy slumped 13.9% after launching a convertible bonds offering.
