Stocks fall on Trump tariffs; euro gains as Germany invests

By Caroline Valetkevitch

NEW YORK (Reuters) -Major stock indexes fell on Tuesday as the United States hit Canada, Mexico and China with steep tariffs, while the euro climbed to a three-month peak against the U.S. dollar as German political parties agreed to a 500 billion euro infrastructure fund.

U.S. President Donald Trump's 25% tariffs on imports from Mexico and Canada, along with doubled duties on Chinese goods, took effect on Tuesday. China and Canada retaliated while Mexican President Claudia Sheinbaum vowed to respond likewise, without giving details.

The tariffs fueled investor worries about the impact on the economy. A trade group representing nearly all major automakers warned that new 25% tariffs on imports from Canada and Mexico imposed by Trump will lead to drastic price hikes.

Jake Dollarhide, CEO of Longbow Asset Management in Tulsa, Oklahoma, said one concern is what tariffs mean for the prices of many items. "This economy has been driven by the consumer and saved by the consumer," he said.

The Nasdaq ended down 9.3% from its record closing high on December 16.

The Dow Jones Industrial Average fell 670.25 points, or 1.55%, to 42,520.99, the S&P 500 fell 71.57 points, or 1.22%, to 5,778.15 and the Nasdaq Composite fell 65.03 points, or 0.35%, to 18,285.16.

MSCI's gauge of stocks across the globe fell 9.67 points, or 1.13%, to 846.14. The pan-European STOXX 600 index fell 2.14%.

"Trump's tit-for-tat approach has heightened fears of a global trade war, pressuring risk assets while boosting safe havens," said Uto Shinohara, senior investment strategist at Mesirow in Chicago.

Gold prices rose amid the heightened safe-haven demand. Spot gold was up 0.6% at $2,911.88 an ounce.

Germany's conservatives and Social Democrats announced proposals to set up a 500 billion euro fund for infrastructure and overhaul borrowing rules aimed at increasing defense spending.

The euro rose to $1.0623, the highest since December 6.

Against the yen, the euro touched a two-week high. It was last up 1.2% at 158.64 yen.

German Bund futures fell on the news out of Germany, which came after the close of European markets. German and European stocks are expected to open higher on Wednesday, as futures, which had fallen earlier in the day on the U.S. tariff worries, rose.

Longer-dated U.S. Treasury yields reversed earlier declines on the news in Germany. The yield on the benchmark U.S. 10-year Treasury note rose 2.6 basis points to 4.206% after earlier falling to 4.106%, its lowest since October 21.

Investors also digested a Reuters report, citing people familiar with the situation, that Trump's administration and Ukraine plan to sign the much-debated minerals deal following a disastrous Oval Office meeting Friday.

Oil prices settled close to multi-month lows after reports of OPEC+ plans to proceed with output increases in April and after the tariff news.

Brent futures settled 58 cents lower, or 0.8%, at $71.04 a barrel. The session low was $69.75 a barrel, its lowest since September.

U.S. West Texas Intermediate (WTI) crude fell 11 cents a barrel, or 0.2%, at $68.26. The benchmark previously dropped to $66.77 a barrel, the lowest since November.

(Reporting by Caroline Valetkevitch; Additional reporting by Laura Matthews in New York and Alun John in London; Additional reporting by Iain Withers; Editing by Jan Harvey and Lisa Shumaker)