LONDON: European stock markets ended lower on Tuesday (Aug 6), giving up early gains made after Beijing appeared to hold fire in its conflict with the US over the level of its currency.
Equities tumbled on Monday after China allowed the yuan to slide sharply against the dollar in response to US President Donald Trump's threat of additional tariffs on Chinese goods.
Tensions have risen sharply since last week when Trump announced fresh tariffs on Chinese goods from Sep 1 and the yuan's slump fuelled speculation that Beijing was allowing its currency to devalue so as to help support its exporters.
On Tuesday, investors initially relaxed a bit after the People's Bank of China fixed the yuan at a higher level against the dollar than analysts had expected, signalling a degree of restraint after Washington slapped the "currency manipulator" label on China.
US equities were higher in midday trading, but European markets reversed course and slipped lower, following their Asian counterparts into negative territory.
In London, raising prospects for a withdrawal from the European Union without a negotiated agreement also weighed on sentiment.
After markets recently reached record levels in the US, analyst Fawad Razaqzada at Forex.com suggested that "it is possible that a lot of people who bought near those record levels may use any rebounds as opportunities to close out their losing trades at breakeven or a small loss."
'CAT AND MOUSE'
Analyst Michael Hewson at CMC Markets called the twist in the US-China standoff "this latest game of trade war cat and mouse" and said that "good sense has long since ceased to be an arbiter of future policy moves where the US and China are concerned".
The yuan weakened to below 7.0 yuan to the dollar on Monday, a level investors see as a key threshold in the Chinese currency's value.
The yuan stood at 7.0226 in the European afternoon on Tuesday after hitting a fresh 11-year low at 7.0602 in Asian trades.
The dollar was "likely to strengthen further in most cases as the trade war gets worse and the global economy struggles," said analysts at Capital Economics.
Key figures around 1545 GMT:
London - FTSE 100: DOWN 0.7 per cent at 7,171.69 points (close)
Frankfurt - DAX 30: DOWN 0.8 per cent at 11,567.96 (close)
Paris - CAC 40: DOWN 0.1 per cent at 5,234.65 (close)
EURO STOXX 50: DOWN 0.6 per cent at 3,291.66
Tokyo - Nikkei 225: DOWN 0.7 per cent at 20,585.31 (close)
Hong Kong - Hang Seng: DOWN 0.7 per cent at 25,976.24 (close)
Shanghai - Composite: DOWN 1.6 per cent at 2,777.56 (close)
Pound/dollar: UP at US$1.2155 from US$1.2143 at 2100 GMT
Euro/pound: DOWN at 92.15 pence from 92.26 pence
Euro/dollar: DOWN at US$1.1197 from US$1.1202
Dollar/yen: UP at 106.38 yen from 105.95 yen
Brent North Sea crude: UNCHANGED at US$59.80 per barrel
West Texas Intermediate: DOWN five cents at US$54.64 per barrel