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The Dow Jones Industrial Average sank more than 2 per cent at the open on Wednesday as big U.S. manufacturers, grain merchants and chipmakers bore the brunt of a deepening trade conflict between China and the United States.

The S&P 500 opened below its 200-day moving average, a key technical level.

The Dow fell 506.21 points, or 2.11 per cent, to 23,527.15. The S&P lost 40.75 points, or 1.56 per cent, to 2,573.7. The Nasdaq Composite dropped 126.95 points, or 1.83 per cent, to 6,814.33.

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Canada’s main stock index fell to its lowest level in almost two months on Wednesday as China retaliated to U.S. tariffs, heightening fears of a trade war.

The Toronto Stock Exchange’s S&P/TSX Composite Index fell 174.82 points, or 1.15 per cent, to 15,005.94. All of the index’s 10 main groups were down.

“It’s tit-for-tat as China retaliates, sending the markets in a tailspin. Today’s decline will likely accelerate the pace of testing the indices yearly lows in the coming days,” said Peter Cardillo, chief market economist at First Standard Financial in New York.

China levied 25-per-cent additional tariffs on U.S. goods earlier in the day. But unlike Washington’s list that covers many obscure industrial items, Beijing’s covers 106 key U.S. imports including soybeans, planes, cars, and chemicals.

As has been the case since the trade war fears surfaced, industrials were the worst hit. Shares of Boeing, the single largest U.S. exporter to China, tumbled 4.8 per cent in early trading. Caterpillar fell 4 per cent.

Automakers Ford, General Motors, Fiat Chrysler and Tesla fell between 2 per cent and 4 per archcent.

Grain merchant Archer Daniels was down 1.3 per cent, while Bunge slipped 0.7 per cent.

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Chipmakers, many of which have the highest revenue exposure to China among S&P 500 companies, also fell. All components of the Philadelphia chipmakers index trading were lower, led by AMD’s 4.6-per-cent drop.

“As a sector, technology has the most to lose from a world in which global trade is restricted and of course, some of the subjects of the tariffs, will also be hit,” said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.

Investors headed for safer bets. U.S. 10-year Treasury yield was last down 2.75 basis points at 2.76 percent, while gold prices went up more than 1 percent.

In Europe, London’s FTSE, Paris’s CAC40 and the export-heavy German DAX fell between 0.6 per cent and 1.2 per cent.

“The market should be focused on it because it’s (U.S. protectionist measures are) bad news,” fund manager Ashmore’s head of research, Jan Dehn, said.

Trump denied on Wednesday that the United States was in a trade war with China.

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The Organisation for Economic Co-Operation and Development’s head Angel Gurria said the U.S. exports $150-billion of goods a year to China whereas China exports $500 billion to the U.S., meaning China’s tariffs were therefore not proportional.

The swing in risk sentiment put the pep back into bonds, with yields on U.S. 10-year Treasury debt down three basis points at 2.75 per cent.

Borrowing costs also nudged lower in Europe even as the first March reading on euro zone inflation, important data for markets as the European Central Bank looks to wind down its massive monetary stimulus, came in firm at 1.4 per cent.

Benchmark Bund yields slipped back under 0.50 per cent , just off 2-1/2 month lows hit last week.

MSCI’s broadest index of Asia-Pacific shares outside Japan had spent most of its session dithering either side of flat before ending 0.3 per cent lower.

China’s retaliation came after trading hours for Japan’s Nikkei, which added 0.2 per cent in thin volumes and Chinese blue chips ended down 0.2 per cent. South Korea saw the big move, dropping 1.4 per cent.

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The dollar dropped to 106.14 yen, after edging up from a low of 105.70 on Tuesday. The euro hovered at $1.2287 , after easing from a high of $1.2335 overnight, while the dollar index was 0.2 per cent lower at 90.

“It is not our view to expect risk aversion to sustainably rise, even though nervousness is indeed high,” Credit Agricole currency strategist Manuel Oliveri said in the Reuters Global Markets Forum.

The Mexican peso and Canadian dollar both held firm after hitting a nearly five-month and five-week highs respectively in recent days on growing optimism about the prospect of a NAFTA trade deal.

Investors also seemed to be keeping their nerve on the global economic outlook after a host of manufacturing surveys (PMIs) showed some slowing, but from lofty levels in many regions.

Activity in Japan’s service sector also grew at its slowest pace in 17 months last month, British shop prices dropped at the fastest pace for more than a year while Australian February building approvals fell 6.2 per cent.

“If global PMIs slow and avoid overheating concerns, that is good for risk appetite. If they slow for ‘the wrong reasons’ like trade protectionism, that is much more worrying,” Deutsche Bank global strategist Alan Ruskin said.

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“The March data is at the most a very early warning shot for policymakers not to get too complacent on global growth resilience,” he said.

Trade wars were a particular concern for developing Asia, where South Korea, Taiwan, Thailand, China, Indonesia, and India reported a slowing in factory activity.

In commodity markets, gold jumped 0.85 per cent to $1,343 an ounce, recovering some of Tuesday’s losses.

Oil prices slipped with Brent crude futures off 97 cents to $67.14 a barrel, while U.S. crude fell 98 cents to $62.51 a barrel.

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