The spectre of a global trade war sent world stocks tumbling on Friday and drove investors toward the traditional safe plays of government bonds and the Japanese yen.

Europe’s STOXX 600 index fell over 1 per cent early on, following both Wall Street and Asia down, after Donald Trump said the United States would impose hefty tariffs on imported steel and aluminium.

Trump said duties of 25 per cent on steel and 10 per cent on aluminium would be formally announced next week, sparking concerns of retaliatory moves from major trade partners such as China, Europe and neighbouring Canada.

“It is a real worry because Europe is a open global economy so it isn’t just about US versus China,” with Ian Ormiston, European equity fund manager at Old Mutual Global Investors. “And we will see retaliation there are no two ways about it.”

Europe’s early drop came amid caution anyway ahead of crunch few days of politics.

Britain’s under-fire Prime Minister Theresa May will flesh out her Brexit plans later, while Germany will find out if it finally has a coalition government and Italy holds elections on Sunday.

Combined with the simmering trade war nerves it was unsurprising then that safe-haven demand was on the rise.

US Treasury yields fell as they appeared to push aside considerations of inflation, a major theme that spooked global financial markets earlier this year.

The 10-year US Treasuries yield fell to 2.811 per cent, hitting its lowest level in three weeks and further extending the distance from its four-year peak of 2.957 per cent touched on Feb 21.

German Bunds – Europe’s credit market benchmark – then saw their yields fall to a five-week low of 0.618 per cent as Italy’s BTP yields dropped to a two-week low of 2.008 per cent.

“I am surprised how little risk the market is pricing from this,” said the Chief Investment Officer of Pictet Wealth Management Cesar Perez Ruiz, referring to the Italian elections.

The trade nerves had dominated Asian market moves.

Japan’s Nikkei tumbled 2.5 per cent to end the week down 3.3, while MSCI’s broadest index of Asia-Pacific shares excluding Japan dropped 0.9 per cent to take its losses for the week to 2.1 per cent.

Steelmakers were hit the hardest. ArcelorMittal SA, the world’s largest, fell 3.5 per cent in Europe, South Korea’s Posco lost 3.3 per cent and Japan’s Nippon Steel ended down 3.8 per cent.

Toyota Motor shares had skidded 2.4 per cent too after the automaker had said the planned tariffs would substantially raise the production costs and therefore prices of cars and trucks sold in America.

On Wall Street, the S&P 500 had lost 36.16 points, or 1.33 per cent, to 2,677.67 on Thursday, coming a day after markets had also sold off heavily on worries the Federal Reserve might increase rates more than expected this year.

The anxiety over tit-for-tat moves was underscored by Canada’s quick response, with officials in Ottawa saying they will retaliate.

The concerns also eclipsed upbeat US economic data including a 14-year high in manufacturing figures and a 48-year low in the number of Americans filing for unemployment benefits.

In the currency market, the dollar’s rebound following the bullish comments on the US economy from new Federal Reserve Chair Jerome Powell on Tuesday lost momentum.

The euro jumped back to $US1.2273 ($A1.7182), after having hit a seven-week low of $US1.2154 ($A1.7016)5 on Thursday.

The yen got an additional boost when Bank of Japan Governor Haruhiko Kuroda said he would mull an exit from the BOJ’s current stimulus regime if the central bank’s 2 per cent inflation target is achieved in 2019.

The dollar dropped 0.5 per cent to 105.73 yen, edging back towards its 15-month low of 105.545 set on Feb 16.

The dollar index is down 2.1 per cent this year, dogged by suspicions that the Trump administration prefers a weaker dollar to help narrow the United States’ yawning trade deficit.

Worries that Trump’s big tax cuts and spending plans will ramp up fiscal deficits to the extent that they undermine confidence in US debt have also hurt the greenback.

Oil prices were also under pressure, having fallen more than 1 per cent the previous day on trade friction fears.

US crude was little changed in late Asian trade at $US60.93 ($A85.30) per barrel, having fallen to two-week low of $US60.18 ($A84.25) on Thursday. It is down 3.7 per cent so far this week.

Brent futures traded at $US63.85 ($A89.39) per barrel after having hit a two-week low of $US63.19 ($A88.47).

“The world stands on the brink of a trade war,” said Robert Carnell, head of research, Asia-Pacific at ING in Singapore. “Forget the yield curve – this is how recessions start.”