China said it would impose higher tariffs on most US imports on a revised $60 billion target list, chilling risk appetite world over as it hit back at a tariff hike by Washington which came into force on Friday.

The pan-European STOXX 600 index dropped 1.2pc, with all sub-sectors apart from utilities declining.

Germany's trade-sensitive DAX dropped 1.5pc, while French shares fell 1.2pc.

London-traded stocks fell to a two month closing low, down 0.6pc.

Graham Secker, European equity strategist at Morgan Stanley, said the near-term worsening in the risk-reward outlook for equity markets, amid rising trade tensions, may drive more traditional defensive sectors to outperform.

Utilities stocks - oft-considered a defensive bet - rose 0.2pc. Centrica Plc rose 3pc as Britain's top energy supplier maintained its full-year outlook.

Oil and gas stocks dipped 0.1pc, saved from a steeper fall by Brent crude futures rising following attacks on vessels off the United Arab Emirates' coast.

Stocks of tariff-exposed auto-makers and their suppliers dived 2.7pc, as all stocks on the sector index fell.

The slide on the day took the sector index from outperforming the STOXX 600 in the year to date to underperforming the broad benchmark. While the STOXX 600 has added 10.3pc in 2019, auto stocks are now up 9.7pc.

The telecommunications index slid 2.2pc as all stocks on it fell. Vodafone Group led the decliners with a 5.2pc drop.

Berenberg cuts its price target on the London-listed firm, which was reportedly going to cut its dividend to pay for auctions for mobile phone airwaves in Germany and Italy.

Chemicals firms slid 1.3pc, with polymer maker Victrex Plc diving 7.2pc after warning annual growth could stall following a much weaker first half due to fewer automotive and consumer electronics contracts.

Banks slid 1.6pc, with Deutsche Bank and UBS falling 2pc and 2.1pc, respectively.

Talks between the German banking giant and the Swiss lender to tie up their asset management businesses have stalled, sources told Reuters, mainly over which bank would control the combined entity.

DWS, Deutsche's asset management unit, fell 3.3pc to its lowest closing level in a month and a half.

Thyssenkrupp shed 8.7 percent. Short-sellers scrambling to unwind their bearish bets had sparked a record gain in the German firm's stock on Friday, when it said it would embark on a fresh restructuring andd list its elevators business.