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Trump’s saber rattling over China trade sinks stocks

Traders working on the floor of the New York Stock Exchange. Stocks fell over 450 points Tuesday as investors remained on edge over President Donald Trump’s threat to boost tariffs on Chinese imports.

Losses in equities accelerated into the close of U.S. trading as investors remained on edge over President Donald Trump's threat to increase tariffs on billions of dollars of imports from China. Oil dropped and the yen strengthened.

The S&P 500 slumped the most since January, declining by as much as 2.4%, amid speculation that the imposition of fresh levies would upend the global economy. All 30 stocks in the Dow Jones industrial average were in the red. China's top trade negotiator still intends to visit Washington later this week as Mr. Trump ratchets up pressure to clinch a deal that many market participants had expected was all but done.

"Investor complacency finally caught up with the market as a smooth ride to a trade agreement was all but priced in prior to this week," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. "Unfortunately, real life isn't as simple as that and we're running into issues as we get closer to the end of trade negotiations."

The Stoxx Europe 600 index closed at a five-week low. Korean and Japanese shares slid as both markets reopened after holidays, though stocks in Shanghai and Hong Kong climbed. Bonds in the eurozone weakened after the European Commission slashed its growth forecasts for the region and warned that escalating trade tensions could worsen the outlook. Oil was drawn into the trade-war turmoil, dropping toward $60 a barrel.

Investor sentiment remains fragile as traders wait for the next development in the trade dispute between the world's two biggest economies. China's government confirmed Tuesday that Vice Premier Liu He would visit the the U.S. for trade talks May 9-10. At the same time, the country was said to be preparing retaliatory tariffs on American imports should Mr. Trump carry out his threat of further duties.

"This is a case of "it's not what you say, it's what they hear,"' said Putri Pascualy, managing director for PAAMCO. "The math on risk premia for multiple asset classes have changed."