TOKYO (REUTERS) – Asian stocks, already under pressure from growing global growth fears, tumbled on Thursday (Oct 3) after New York markets slumped overnight because the United States opened a new trade war front by saying it will impose tariffs on US$7.5 billion (S$10.3 billion) of goods from the European Union.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.38 per cent. Japan’s Nikkei stock index dropped 1.96 per cent and Australian shares declined 2.19 per cent.

Two-year US Treasury yields approached a two-year low and the dollar fell against major currencies as weakening economic data exposed the damage that the trade war with China has already caused to the US economy.

Oil future extended their decline in Asia as a bigger-than-expected increase in US crude inventories and growing evidence of slowing economic growth point to lower energy demand.

The United States and China have already hiked tariffs on each other’s goods in a year-long trade row that has raised the risk of recession and caused major central banks to ease monetary policy.

The chance that Europe will respond in kind to US tariffs is likely to further fuel concerns that global growth is set for a prolonged period of stagnation.

“In the short term it looks a bit dicey (for markets), given the declines we’ve already had in the past two days,” said Mr William O’Loughlin, portfolio manager at Rivkin Asset Management in Sydney.

“The EU tariffs are concerning. I agree that sentiment for equities will be weak. The bond market is saying it’s not confident in future growth.”

US stock futures were up 0.21 per cent, but this did little to bolster sentiment after shares on Wall Street suffered their sharpest one-day decline in nearly six weeks on Wednesday.

The United States on Wednesday said it would enact 10 per cent tariffs on European-made Airbus planes and 25 per cent duties on French wine, Scotch and Irish whiskies and cheese from across the continent as punishment for illegal EU aircraft subsidies.

The tariffs announced on Wednesday were approved by the World Trade Organisation but could still cause friction across the Atlantic.

EU manufacturers are already facing US tariffs on steel and aluminium and a threat from US President Donald Trump to penalise EU cars and car parts.

The two-year yield fell to 1.4760 per cent, close to a two-year low of 1.4280 per cent, after a weak US private sector jobs report depressed boosted expectations that the Federal Reserve will cut interest rates this month.

Traders see a 74.4 per cent chance the Fed will cut rates by 25 basis points to 1.75 per cent-2.00 per cent in October, up from 39.6 per cent on Monday, according to CME Group’s FedWatch tool.

Bets on a rate cut could rise further if US non-farm payrolls due on Friday show weakness in the labour market.

The dollar index against a basket of six major currencies stood at 99.020, extending a retreat from a two-year high reached on Tuesday.

Spot gold, a safe-haven asset that investors often buy during time of heightened risk, rose 0.02 per cent to US$1,499.59 per ounce.

US crude dipped 0.3 per cent to US$52.48 a barrel. In addition to a slowing global economy, energy traders are worried about an oversupplied market and the chance of geopolitical friction in the Middle East.