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European futures drop as Canada, Mexico retaliate

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Trump slaps 25% tariffs on Canada, Mexico; 10% on China

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US dollar hits record high vs yuan

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Mexican peso, Canadian dollar tumble

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Hang Seng drops flat after holiday, mainland markets shut

By Nell Mackenzie, Kevin Buckland and Naomi Rovnick

LONDON/TOKYO, Feb 3 (Reuters) - European shares slid on

Monday, joining a worldwide selloff sparked by fears that U.S.

President Donald Trump's tariffs on Canada, Mexico and China

mark an opening salvo in a global trade war that would curb

economic growth internationally.

The pan-European STOXX 600 index was down 1.3% at

0845 GMT, set for its biggest one-day slide this year.

Futures for Wall Street's S&P 500 also fell 1.4%,

while those on the tech-heavy Nasdaq fell 1.6%. Futures

on the Russell 2000 index of small cap stocks - viewed

as major beneficiaries of Trump's policies - fell 2.3%.

Europe's biggest automakers, which are vulnerable to

trade duties, sank by more than 3% while the region's technology

shares were also among the major losers, falling over

2%. The euro currency dropped 1.1%.

In three executive orders, the United States imposed 25%

tariffs on Mexican and most Canadian imports and a further 10%

on goods from China, starting on Tuesday.

Britain's FTSE 100 fell 1.5%, while the pound

dropped 0.7% after Trump told reporters on Sunday that

while the country was "out of line" when it came to trade, it

may be able to avoid tariffs.

"We'll see how things work out. It might happen with them,

but it will definitely happen with the European Union, I can

tell you that," said Trump.

The President warned that Americans might feel "some pain"

as tariffs are expected to increase consumer prices in the

United States, while the effect of the trade war is expected to

be felt far beyond North America.

The Mexican peso tumbled more than 2% to touch its lowest in

nearly three years against the dollar. Mexican President Claudia

Sheinbaum ordered retaliatory tariffs, as did Canada, with Prime

Minister Justin Trudeau warning Americans that tariffs would

have real consequences for them.

The tit-for-tat moves led to investors buying U.S. dollars,

selling stocks and fretting about inflation.

Japan's Nikkei share average ended the day down

almost 3% and Australia's benchmark - often a proxy

trade for Chinese markets - dropped 1.8%.

Stocks in Hong Kong, which include listings of Chinese

companies, finished flat upon reopening from Lunar New Year

holidays. Mainland Chinese markets resume trading on Wednesday.

'A LITTLE BIT OF SHOCK'

Trump's move was the first strike in what could usher in a

destructive global trade war and drive a surge in U.S. inflation

that would "come even faster and be larger than we initially

expected," said Paul Ashworth of Capital Economics.

A model gauging the economic impact of Trump's tariff plan

from EY chief economist Greg Daco suggests it would reduce U.S.

economic growth by 1.5 percentage points this year, throw Canada

and Mexico into recession and usher in "stagflation" at home.

"People thought, okay, there's a pro-business president,

there's a pro-business Congress. What could go wrong, right? And

I think it's just a little bit of a shock that he's trying to do

so many things at once," said Olivier D'Assier, head of applied

research for Asia Pacific at investment consultant Simcorp.

"He's picking so many fights, and the fights that he's

picking first don't seem to be the most pressing ones."

Barclays strategists previously estimated tariffs could

create a 2.8% drag on S&P 500 company earnings, including the

projected fallout from retaliatory measures.

U.S. two-year Treasury yields rose as much as 3.6

basis points to 4.28%, a 10-day high, on concerns tariffs will

stoke inflation and delay Federal Reserve interest rate cuts.

Bitcoin tumbled as low as $91,439.89, a three-week

trough, while ether, the second-largest cryptocurrency by

market value, fell nearly 25% over the weekend and into Monday.

Oil prices rose, with U.S. Texas Intermediate crude

up $1.28 at $73.81 a barrel and Brent crude futures

adding 64 cents to $76.31 a barrel as investors tried to gauge

the impact of the tariffs on world energy.