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Europe: Stocks stumped as US threatens tariffs on Mexico

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[BENGALURU] European stocks tanked on Friday, with auto-makers hit especially hard, after US President Donald Trump widened the scope of his trade wars by threatening to impose new tariffs on Mexican imports.

Investors exited riskier equity positions and moved to safer ground, sending European defensive stocks higher and yields on German bonds to record lows.

The pan-Europe Stoxx 600 fell 0.8 per cent on the day to close out May with a 5.7 per cent slide, its worst monthly loss since January 2016.

"President Donald Trump is playing a Game of Thrones with both foreign and domestic adversaries," Ed Yardeni, president and chief investment strategist at Yardeni Research, wrote in a note.

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"Since he is the president of the world's greatest economic and military power, he claimed that he will consummate lots of deals with them that will greatly benefit the US in short order," said Mr Yardeni, adding that "the results have been mostly disappointing so far". 

Germany's trade-sensitive DAX fell 1.5 per cent to an about five-month closing low. French stocks slid 0.8 per cent, matching their London peers.

Mr Trump's move hit European stocks exposed to Latin America's second largest economy. Madrid-listed banks Santander, Sabadell and Bilbao, all of whom have a sizable presence in Mexico, slid between 2.4 per cent and 4.1 per cent.

Carmakers and their suppliers shed 2 per cent, while Fiat Chrysler and Volkswagen - which import cars to the US from Mexican plants - shed 4.8 per cent and 2.6 per cent respectively.

During May, tariff-exposed auto-stocks have greatly underperformed the Stoxx 600, which itself has lagged the S&P 500.

Milan-listed stocks fell 0.7 per cent, with local banks matching that decline. The country's lenders were hit by the Bank of Italy warning that public debt could rise more than forecast this year.

Frankfurt-listed Wirecard tumbled 8.7 per cent after a Handelsblatt report on an investigation by authorities into fraudulent transactions in the sector.

Utilities edged 0.2 per cent higher, while real estate stocks - a refuge for investors at times of tariff turmoil - rose 0.6 per cent.

Athens-traded stocks provided a rare spot of optimism on the day, rising 1.5 per cent to a near 13-month peak. The index posted a 7.4 per cent gain for May, aided by news of snap elections being called.