NEW YORK, Dec 3 — The dollar and global stock markets fell yesterday after US President Donald Trump said he would restore tariffs on some imports from Brazil and Argentina, with losses exacerbated by a slide in new US factory orders in November to their lowest since 2012.

European shares posted their biggest daily drop in two months as the tariff threat overshadowed encouraging data on the Chinese and euro zone economies. Investors worried Trump would target Europe again.

Last week, MSCI’s gauge of global stock markets had approached a record high on hopes Beijing and Washington will hammer out a "phase one” trade deal this year.

The dollar posted its biggest decline against the euro since mid-September as the weak US manufacturing data and an unexpected drop in US construction spending in October rekindled worries about a slowing economy.

Data from the Institute for Supply Management (ISM) showed the US manufacturing sector contracted for a fourth straight month in November as new orders slid.

European equities were also pressured by a World Trade Organisation ruling on European Union subsidies to European planemaker Airbus, which supported the US case for retaliatory tariffs.

Germany’s export-sensitive DAX stock index tumbled 2.1 per cent, its biggest single-day decline since early October, when the WTO approved US moves to slap import tariffs on US$7.5 billion (RM31.3 billion) worth of European goods.

MSCI’s gauge of stocks across the globe shed 0.61 per cent, while the pan-European STOXX 600 index lost 1.58. Wall Street also fell, though not as hard as Europe.

Trump’s tweets triggered selling that accelerated on the weaker-than-expected data, said Fawad Razaqzada, market analyst at Forex.com in London.

"It’s a number of reasons coming in all at the same time,” Razaqzada said. "But with the stock markets at record high levels, this is always going to happen. Markets go up in stairs and then on the way down, it’s an elevator.”

The major US indexes last week hit record highs while MSCI’s index of equity markets in 49 countries rose to one point below an all-time high established in January 2018.

The Dow Jones Industrial Average fell 268.37 points, or 0.96 per cent, to 27,783.04, the S&P 500 lost 27.11 points, or 0.86 per cent, to 3,113.87 and the Nasdaq Composite dropped 97.48 points, or 1.12 per cent, to 8,567.99.

ISM said its index of US factory activity dropped 0.2 point to a reading of 48.1 in November. A reading below 50 indicates contraction in factory output, which accounts for 11 per cent of the US economy. The index needs to break below 42.9 to signal a recession.

The dollar dropped from six-month highs against the Japanese yen and slid to a two-week trough versus the euro after the US manufacturing report.

The dollar index fell 0.43 per cent, with the euro up 0.59 per cent to US$1.108. The yen strengthened 0.55 per cent versus the greenback at 108.98 per dollar.

The rally in equities has been predicated on economic recovery and yesterday’s data belied that trend, said Jack Ablin, chief investment officer at Cresset Capital Management in Chicago.

Holiday sales may provide the market upside.

"There’s going to be plenty of good news to go around,” Ablin said. "We could get some really solid news to carry this market at least for the next week or so,” he said.

Markets also were pressured by a report showing US construction spending unexpectedly fell in October as investment in private projects tumbled to the lowest in three years.

Benchmark 10-year US Treasury notes fell 13/32 in price to push yields up to 1.8206 per cent.

Oil jumped above US$61 a barrel, supported by hints that the Organization of the Petroleum Exporting Countries and allies may agree this week to deepen output cuts, while rising Chinese manufacturing activity suggested stronger demand.

US crude gained 79 cents to settle at US$55.96 a barrel and Brent added 43 cents to settle at US$60.92.

Germany’s borrowing costs rose after the Social Democrats (SPD) chose new leaders critical of their ruling coalition, with yields on benchmark 10-year debt set for the biggest one-day spike in nearly three months.

Benchmark German bond yields jumped across the board, with 10-year yields up more than 7 basis points to -0.273 per cent, their highest in nearly three weeks.

US gold futures settled 0.2 per cent lower at US$1,469.20. — Reuters