MILAN: European shares fell on Tuesday after a new threat by Washington to impose more tariffs on Chinese products and fears the trade war could spread to Europe after a report in Germany of possible new U.S. taxes on imported cars.
The pan-European STOXX 600 benchmark closed down 0.2 percent, pulling back from the one-week high reached the day before on optimism over Brexit and a possible Italian budget compromise with Brussels.
"The positivity that started the week was nowhere to be seen on Tuesday, with Donald Trump pouring more fuel on the trade war fire while unleashing some unhelpful Brexit comments," said Connor Campbell, an analyst at Spreadex.com.
The U.S. president said he expected to raise tariffs on $200 billion in Chinese imports to 25 percent from the current 10 percent and repeated his threat to impose tariffs on all remaining imports from China.
U.S. stocks declined at the open on Tuesday as hopes of resolving the trade spat at the upcoming G20 Summit dampened.
Adding to fears of an escalation, Germany's Wirtschaftswoche magazine reported that a U.S. Department of Commerce investigation report was on Trump's desk and that the president could make a decision about new taxes on imported cars after the G20 meeting in Buenos Aires.
European auto stocks lead losers with a 2.5 percent fall and Germany's DAX, seen as a trade war proxy because of its export-heavy constituents, retreated 0.4 percent.
Among other sectoral fallers were mining companies, down 2.3 percent as copper prices slid for the third day, pressured by Trump's comments.
Travel stocks fell 0.9 percent and were under pressure after Thomas Cook cut its profit forecast for the second time in two months and suspended its dividend after the hot British summer deterred holidaymakers from going abroad.
Thomas Cook shares fell 22.6 percent to a six-year low.
"It's been a challenging year for travel operators and airlines, buffeted by the `Beast from the East' at the beginning of the year, and then by industrial action in Europe, as well as rising oil prices through the summer," said Michael Hewson, an analyst at CMC Markets.
However, Accor, rose 1.8 percent after Europe's largest hotels company stuck to its target of doubling core earnings to 1.2 billion euros by 2022.
Tele2 rallied for a second day, up 11.5 percent, following a Reuters report that the European Commission was set to approve without conditions the sale of its Dutch business to Deutsche Telekom.
Following the report, which has rekindled expectations of more dealmaking in the sector, Tele2 said it was optimistic the EU would approve the planned merger.
Shares in Osram rose 16.3 percent after Bloomberg reported that private equity firm Bain Capital was exploring a takeover bid for the German lighting group, citing people with knowledge of the matter.