The Sentix research group said its investor sentiment index for the euro zone fell to -3.3 in June from 5.3 in May. Analysts had expected a reading of 2.9.

"The renewed escalation in the U.S.-China trade dispute is having a considerable impact on the euro zone economy," said     Sentix Managing Director Manfred Huebner.

A sub-index on expectations in the euro zone sank to -12.3 from -0.3, hitting its lowest level since February, and a current situation index fell to 6.0 from 11.0.

Investor morale in Germany dropped to -0.7, entering negative territory for the first time since March 2010.

"This makes a recession very likely," said Huebner.

While trade disputes were weighing heavily on Germany's export-oriented economy, there was also increased talk about the need for more climate protection policies.

"The country's key industry, the automotive industry, is still in a crisis of its own making. In this environment, the current governing coalition's inability to act does not contribute to stabilisation," he added.

Sentix said more than 900 investors took part in its survey which was conducted between June 6 and 8.