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Shares sink on fears of US-China trade war

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(Reuters) – European shares dropped broadly yesterday as investors shunned risky assets while waiting to see whether United States and China can avoid a resumption of their trade war, which would damage the global economy.

The pan-European STOXX 600 index had dropped 0.8 percent by 0842 GMT, touching a fresh four-week low.

US President Donald Trump said on Wednesday that China “broke the deal” it had reached in trade talks with the United States, and vowed not to back down on imposing new tariffs on Chinese imports.

As the world’s largest economies resume two-day trade talks yesterday in Washington, investors were on the edge to see if a last minute truce could avert a sharp increase of tariffs on $200 billion worth of Chinese goods today.

Deutsche Bank’s chief market strategist Jim Reid said it felt unlikely that either side could back down in the near term.

“Maybe over weeks but not over the next few days.”

More than seven major sectors lost above 1 percent. Tariff-sensitive auto stocks slid 1.7 percent while semiconductor stocks also lost ground.

Dialog Semiconductor’s forecast of a recovery in demand failed to enthuse investors while Intel Corp’s uninspiring full year outlook added to woes.

Shares of luxury goods, heavily exposed to Chinese demand, also sold off with Paris-listed LVMH, Hermes and Gucci owner Kering down between 1.3 and 2.5 percent.

Losses in bank stocks weighed the most, with results from some of the biggest Italian banks in focus.

Italy’s third largest lender, Banco BPM dropped nearly 6 percent after a slide in revenues dragged down its profits.

Meanwhile, the country’s biggest bank by assets UniCredit fell even after it reiterated its 2019 targets and posted a net profit above analyst expectations.

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