LONDON (Reuters) -European and Asian shares slumped on Monday as investors weighed the implications of Chinese startup DeepSeek's launch of a free open-source artificial intelligence model to rival OpenAI's ChatGPT.

Meanwhile, the dollar dipped as broad U.S. import tariffs remained on the back burner, even as U.S. President Donald Trump threatened Colombia with levies to punish the country for earlier refusing to accept flights carrying deported migrants.

China's DeepSeek rolled out a free AI assistant that it says uses lower-cost chips and less data, seemingly challenging a widespread bet in markets that AI will drive demand along a supply chain from chipmakers to data centres.

Europe's technology sector led the pan-European STOXX 600 index lower, down 0.7%, while the blue-chip Euro STOXX 50 dropped 1.4% in early European trading.

The STOXX Europe 600 technology index fell as much as 4.6%, its biggest one-day drop since mid-October.

Futures on the tech-heavy Nasdaq Composite in the U.S. tumbled over 3.1% and S&P 500 futures sank 2%.

"China and DeepSeek say, at the very least, that they can deliver what ChatGPT can deliver today at a fraction of the cost," said George Lagarias, investment strategist at Forvis Mazars.

"It makes sense that markets question the narrative that has been underpinning the whole market ... It's a very frothy market so it doesn't really take that much for investors to take some profit."

Shares of AI-bellwether Nvidia , which have risen over 800% since the start of 2023, were down over 7% in pre-market trade.

Japan's Nikkei dropped 0.9%, reversing an initial advance. New Zealand's equity benchmark slipped 0.2% and Singapore's Straits Times index eased 0.1%.

At the same time, Hong Kong's Hang Seng rallied 0.7% and Chinese mainland blue chips dipped 0.4% after data showed a surprise contraction in manufacturing this month.

DOLLAR STRENGTH FLEETING

In currency markets, the dollar dipped, as Trump has so far refrained from implementing broad-based U.S. import tariffs, but China, Mexico and Canada face a nervy wait with Trump last week earmarking Feb. 1 for additional tariffs on the United States' top trading partners.

The dollar rose 1% against the Mexican peso on Monday and 0.1% against its Canadian counterpart.

The Colombian peso had yet to trade against the dollar, but had rallied 3.4% over the previous three sessions.

On Sunday, Trump threatened Colombia with tariffs and sanctions to punish it for refusing to accept military flights carrying deportees, but Colombia later said it would accept the military aircraft and the U.S. sanctions threat was put on hold.

The euro eased 0.1% to $1.0481. Sterling was little changed at $1.2470. The yen rose 0.8% to 154.72 per dollar.

"As a trend, Trump is taking a more realistic, less aggressive stance on tariffs," Nomura strategist Naka Matsuzawa said.

"Bottom line: Trump doesn't want big tariffs because he's worried about inflation," he said. "The dollar will be overall weaker."

The volatility across asset classes kicks off a crucial week for markets that will see the Federal Reserve and European Central Bank - among others - set monetary policy.

At the same time, many Asian bourses have extended holidays this week for the Lunar New Year. Among them, South Korea and Taiwan were already closed on Monday. Markets in mainland China are shut from Tuesday and do not reopen until Feb. 5. Australia was closed on Monday for Australia Day.

Meanwhile, crude oil prices rose slightly with Brent crude futures up 0.3% to $78.75 a barrel, while U.S. West Texas Intermediate crude gained 0.2% to $74.80 a barrel.

Gold sank 0.3% to $2,764 per ounce.

Leading cryptocurrency bitcoin slumped more than 5% to below $100,000 for the first time in a week, and was last at $99,210.