European shares on track to confirm correction after China hits back with retaliatory tariffs

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Updates after China's retaliatory tariffs

By Sukriti Gupta and Medha Singh

April 4 (Reuters) - European shares slumped on Friday as China hit back with steep tariffs days after U.S. President Donald Trump announced sweeping levies, intensifying fears of a global recession triggered by the trade war.

The pan-European STOXX index .STOXX fell 5.2% at 1131 GMT, dropping about 12% from its March 3 all-time closing high, on course to confirm the benchmark is in correction territory.

Germany's DAX .GDAXI and the euro zone blue-chip index .STOXX50E were also on correction course, dropping 5.7% and 5%, respectively, on Friday. Among regional markets, Italy .FTMIB shed 7.8%, Spain .IBEX declined 6.3% and France .FCHI fell 4.7%.

A gauge of euro zone stock market volatility .V2TX rose 11.5 points to 37, its biggest one-day spike in 3-1/2 years.

China announced a slew of countermeasures against tariffs imposed by Trump, including additional tariffs of 34% on all U.S. goods and curbs on export of some rare earths, deepening an escalating trade war. The Chinese finance ministry said the additional tariffs would be imposed from April 10.

"China comes out swinging with an aggressive response ... this is significant and is unlikely to be over," said Stephane Ekolo, market & equity strategist at Tradition in London.

The tit-for-tat tariffs mark a sharp escalation in the global trade war that threatens to raise prices, upend supply chains and squeeze corporate profit margins, putting the STOXX 600 on course for its sharpest weekly decline since March 2020.

France, working along with the European Union, is likely to issue reciprocal responses to U.S. tariff measures on the EU initially in mid-April and then again in late April, France's government spokesperson said on Thursday.

Europe was hit with a 20% effective U.S. tariff rate this week, prompting traders to increase bets on interest rate cuts from the European Central Bank to shore up economic growth.

Traders now see a 90% chance of a quarter-point rate cut from the ECB later this month, alongside two more reductions widely expected before 2025 ends.

European banks .SX7P racked up the most losses among sectors, down 15% in two sessions, marking their steepest falls since June 2016.

The luxury sector, which heavily relies on China for sales, also faltered as France's LVMH LVMH.PA lost 2.8%, while Gucci-owner Kering PRTP.PA, Hermes HRMS.PA and Richemont CFR.S fell between 3.4% and 7.5%.

Pharma companies Novartis NOVN.S, Roche ROG.S and Novo Nordisk NOVOb.CO also weighed heavily on the index.

Data on Friday showed German industrial orders stagnated in February and the January data were upwardly revised, showing that the country's industrial sector could have bottomed out but the recovery may be slow.

Among stocks, Gerresheimer GXIG.DE slumped 16.8% after a report said KKR KKR.N has abandoned a private equity consortium discussing a takeover of the German speciality packaging maker.

Kinnevik KINVb.ST climbed 2.3% after the nomination committee proposed that Cristina Stenbeck return as the chair of the Swedish investment company after nine years.

Investors await a crucial March U.S. jobs report, due at 1230 GMT, to gauge the health of the world's biggest economy.

(Reporting by Medha Singh and Sukriti Gupta in Bengaluru; Additional reporting by Samuel Indyke; Editing by Mrigank Dhaniwala and Shounak Dasgupta)

((Medha.Singh@thomsonreuters.com; +91 80 6210 0592; X, formerly Twitter: @medhasinghs))