European shares hit two-week low as Trump's tariff plans slam automakers

By Medha Singh

(Reuters) -European shares fell to a two-week low on Thursday, led by auto stocks after U.S. President Donald Trump's plans for 25% import tariffs on all vehicles and foreign-made auto parts fuelled fears a trade war could slow global growth.

The pan-European STOXX 600 was down 0.8% as of 1212 GMT, well off its lows of 1.1% earlier in the session that wiped off nearly 10 billion euros from its market value. The benchmark index for Germany, among the biggest suppliers of car and car parts to the United States, fell 1%.

The region's top automaker, Volkswagen, dropped 2.1%. Chrysler-parent Stellantis slumped 4.1%, BMW fell 2.7%, Porsche slid 4.4%, car parts maker Continental shed 3.2% and Volvo Cars slipped 1.2%.

The STOXX 600 autos sector slumped more than 2.2%, and is on track to erase all of its gains so far this year.

The new levies, set to take effect on April 3, could increase the cost of an average U.S. vehicle by thousands of dollars, given the intertwined supply chains across North America.

German Economy Minister Robert Habeck called for a tough stance, while the head of the country's car industry association said the tariffs are a "fatal signal" for global trade.

Investors were also wary of Trump's promised reciprocal tariffs on trade partners due on April 2, which he calls "Liberation Day" for the U.S. economy.

"Tariff uncertainty is likely to be the main market driver over the next few weeks, and we believe markets are under-pricing trade risks," said Ajay Rajadhyaksha, global chairman of research at Barclays.

The STOXX 600 index is headed for its first monthly drop this year as the back-and-forth around U.S. trade policies stoked fears of a global slowdown.

Despite the drop, the index is still set for its strongest quarterly performance in two years, on the back of hopes of an economic boost from Germany's historic fiscal spending and a rotation out of U.S. stocks.

"The medium-term outlook for Europe has improved amid the EU's reaction to Trump and German fiscal boost. But do not count the U.S. out as the near-term overhangs begin to clear," Rajadhyaksha said.

Economically sensitive bank stocks slid 1.6% after the tariff announcement. Swedish banks Handelsbanken and Swedbank tumbled 11.9% and 7.9%, respectively, as both traded ex-dividend.

ProSiebenSat.1 dropped nearly 10% after MFE made a low-ball bid for shares in the German media group it does not already own.

(Reporting by Medha Singh in Bengaluru; Editing by Sherry Jacob-Phillips and Krishna Chandra Eluri)