LONDON: Global stock markets fell on Friday as trade war worries returned with a vengeance when China said it would target US imports worth $75 billion with new tariffs.

The new round in the bruising trade war between Washington and Beijing caused a sudden trend reversal in European markets which had been showing solid gains in the morning.

"The retaliation will further fuel tensions and add to the uncertainty surrounding the trade war," said analysts at ING Economics.

Shortly before European equity markets closed for the weekend, US President Donald Trump pledged a response to China "this afternoon".

Wall Street extended modest opening opening losses throughout the New York morning, taking stocks "decisively lower", said analysts at Charles Schwab, "with the threat of new tariffs on $75 billion of US goods by China causing trade fears to ramp up".

The DJIA index dropped 1.5 percent, with the tech-heavy Nasdaq, especially vulnerable to trade trouble, giving up more than two percent.

Markets had been in a more buoyant mood before China's move as they looked forward to a key speech by Federal Reserve boss Jerome Powell.

But in the event, nothing Powell said dispelled the end-of-week gloom.

- 'Dangerous assumption' -

There is no "settled rulebook for international trade ... no recent precedents to guide any policy response to the current situation", he said in remarks prepared for delivery at a meeting of central bankers at Jackson Hole.

He also said the Fed would act 'as appropriate' to ensure US growth carries on.

"The Fed chief's remarks appear to be keeping expectations of further rate cuts this year in play," said Schwab analysts, adding this explained why the dollar weakened in response.

Powell stopped short of giving the kind of clear rate cut hints beyond the autumn that some analysts had been hoping for. However, such hopes had always been, in the words of Jeffrey Halley, senior market analyst at OANDA, based on a "dangerous assumption".

US President Donald Trump, for one, seemed disappointed, saying Powell had done "nothing", and wondering aloud whether the Fed chief or China was the "bigger enemy" of the US.

"Tensions between the central bank, the US president, and market expectations are unlikely to be resolved soon," said Jonas Goltermann at Capital Economics.

Traders were also digesting another inversion of the US yield curve seen Thursday, when the return on 10-year notes fell below that of two-year notes, which is often seen as a precursor to recession.

"The yield curve is talking to you ... and it's not saying anything nice," said ING senior rates strategist Antoine Bouvet.—AFP