By David Hodari 
   -- Fresh tariff threats batter global stocks 
 
   -- ZTE pounded after Senate votes to reimpose ban 
 
   -- Industrials, materials sectors among worst in S&P 

Global stocks dropped Tuesday as trade tensions between the U.S. and China intensified, sparking selling from Shanghai to New York.

The Dow Jones Industrial Average tumbled 399 points, or 1.6%, to 24588. The S&P 500 fell 1%, and the Nasdaq Composite fell 1.4%.

Shares of industrial and materials companies, which analysts fear could take a heavy hit under a trade war, were the S&P 500's worst-performing sectors, falling 2.4% and 2.6% respectively. Utilities, real estate and consumer staples -- groups that investors often flock to in times of market volatility -- all climbed.

The swings in the U.S. stock market came after Asian investors dumped Chinese stocks, sending the Shanghai Composite Index down to its lowest level in almost two years, and the Shenzhen A Share index shedding 5.8%. Investors also unloaded stocks elsewhere, with the Stoxx Europe 600 recently down 1%.

President Donald Trump raised the stakes in Washington's trade conflict with China Monday, asking his administration to draw up a fresh list of Chinese goods worth $200 billion on which to impose tariffs.

The move followed levies on $50 billion in Chinese imports to the U.S. enforced late last week aimed at punishing China for unfair trading practices. Beijing immediately threatened retaliatory measures on high-value American exports such as crude oil, farm products and cars.

Should China follow through on those measures, Mr. Trump said he had instructed U.S. Trade Representative Robert Lighthizer to impose a 10% tariff on that fresh tranche of goods.

The development marked the latest escalation in a series of events that investors fear could precipitate a trade war between the world's two largest economies. Investor worries about the willingness of the Trump administration to maintain international trading relationships with neighbors and allies have injected uncertainty into global markets in recent months.

Kate Warne, investment strategist for Edward Jones, cautioned investors against changing their holdings substantially, given that the tariff threats might not actually take place.

"It's hard to tell whether these announcements are all negotiating positions and we'll see some set of discussions to basically lower the temperature," Ms. Warne said.

Trade concerns were among the risks highlighted by European Central Bank President Mario Draghi on Tuesday, when he said the bank could extend its giant bond-buying program again and delay any interest-rate increases amid mounting economic risks. The comments, days after the ECB laid out plans to phase out its bond purchases, underline the bank's caution in winding down a major stimulus program just as the region's economy appears to be slowing.

While the impact of the trade dispute for U.S. consumers has so far been muted, firms across the world would feel the effects if Washington and Beijing implement their proposed levies, according to Paul Donovan, chief economist at UBS Global Wealth Management.

"Non-Chinese companies, including U.S. companies, are just as likely to be affected by taxes on Chinese goods, given the complexity of modern supply chains," Mr. Donovan said in a note.

Government bonds strengthened, with the yield on the benchmark 10-year U.S. Treasury note falling to 2.875%, according to Tradeweb, compared with 2.926% late Monday. Yields fall as bond prices rise.

With strong growth and an interest-rate increase last week from the Federal Reserve, the WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, was last up 0.3%, extending its five-day climb to 1.2%.

If U.S. tariffs do begin to squeeze the Chinese economy, "the fear would be that China could be tempted to devalue its currency as a support mechanism for its economy," said Lee Hardman, currency analyst at MUFG.

Hong Kong-listed ZTE Group plummeted 25% after the U.S. Senate voted to reinstate a ban on selling U.S. parts to the Chinese telecom company. The move marked the rejection of a deal between Mr. Trump and Beijing to save the firm.

Saumya Vaishampayan and William Mauldin contributed to this article.

Write to David Hodari at David.Hodari@dowjones.com

 

(END) Dow Jones Newswires

June 19, 2018 11:13 ET (15:13 GMT)

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