(Reuters) - European stocks slumped to a one week-low on Wednesday as a surge in coronavirus cases and news that U.S. was weighing tariffs on European products dashed investors hopes of a speedy economic recovery.
The pan-European STOXX 600 closed 2.8% lower, recording its second worst fall this month. Economically sensitive cyclical sectors such as travel & leisure .SXTP, automakers .SXAP, oil & gas .SXEP and banks .SX7P led declines, falling between 3.7% and 4.7%.
Many U.S. states saw record daily increases in COVID-19 infections amid easing of lockdowns, while a media report that European Union countries are prepared to bar entry to Americans raised worries of fresh restrictions.
Further adding to woes, the United States may modify duties on a range of EU products and was weighing tariffs on other products from Britain, France, Spain and Germany that have an approximate value of $3.1 billion, according to the Office of the U.S. Trade Representative.
“Coming at a particularly difficult time for markets, this breakdown in relations provides another reason for traders to be cautious about the forthcoming period,” said Joshua Mahony, senior market analyst at IG.
Investors piled into risky assets on Tuesday after data showed improving business activity in France and Germany as well as on White House reassurances about the Phase One U.S.-China trade deal.
But European Central Bank chief economist Philip Lane said that solid data may not be a good guide to how the euro zone recovers from the crisis and the International Monetary Fund predicted a deeper damage to global output.
Germany's DAX .GDAXI slumped 3.4% even as the Ifo institute's survey showed the strongest rise ever recorded in the country's business morale in June.
The top decliner on the STOXX 600 was scandal-hit Wirecard (WDIG.DE), which plunged 28.3% after a slew of negative reports.
Among the few bright spots, Austrian sensor maker AMS (AMS.S) rose 6% after JPMorgan upgraded the stock to “overweight” from “neutral”, while Dialog Semiconductor (DLGS.DE) jumped 6.4% after raising its quarterly revenue outlook.
Reporting by Sruthi Shankar in Bengaluru; Editing by Anil D'Silva, Kirsten Donovan and Giles Elgood