How major U.S. stock indexes fared Tuesday

Dow plunges 700 points amid escalating trade war between US, China

The escalation hit stock markets, with Asia markets falling on Tuesday after Wall Street closed with sharp losses.

As U.S. and Chinese negotiations met in Washington last week, Trump announced that he was raising tariffs from 10% to 25% on $200 billion worth of Chinese goods.

Trump again claimed a very strong relationship with Chinese President Xi Jinping and said that the dialogue with China would continue despite the punishing tariffs on both sides. Their stocks were up 1.7% and 5.5%, respectively.

"As soon as he sent out the tweet that he's not that concerned about the dispute at this point gave the market an element of relief rally", said Sid Mokhtari, executive director of institutional equity research at CIBC.

"An eventual agreement still seems the most likely outcome, although political miscalculation is a rising risk", said Paul Christopher, head of global market strategy at Wells Fargo Investment Institute. Wealthy Chinese buyers have also been pulling out of the US stock market and real estate market, which potentially allows for bigger drawdowns due to less buying pressure. The Nikkei 225 index declined 0.7% Monday while the Shanghai Composite pulled back 1.2%. "China's countermeasures have shown our determination to safeguard the multilateral trade system".

The Dow Jones Industrial Average once lost as much as 719.86 points or 2.77 percent in the session, marking the deepest fall since January 3.

The tariffs will be targeting US goods worth 60 billion USA dollars, the statement said, adding that the products under five-percent tariff cap would not be affected by this round of tariffs.

The Dow Jones Industrial Average was up 207.06 points, or 0.82 percent, to 25,532.05 on Tuesday.

Other investments seen as safe harbors also dropped, such as US government bonds.

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Mr. Higgins cited the previous inversion last month, when the three-month Treasury yield topped that of the 10-year, spooking markets.

Prices for USA government bonds, which are considered ultra-safe investments, rose sharply, sending yields lower.

Investors' nerves were calmed after US President Donald Trump referred to the escalating trade war with China as "a little squabble" and added, "We have a good dialogue going".

With more than 20 years' trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa.

Trump's pledge on Friday to buy American farm products that China normally imports and distribute them to poor countries drew criticism from Canada.

"That would expand its balance sheet but it would allow it to neutralise China's efforts to disturb U.S. financial markets".

The dollar rose to 109.58 Japanese yen from 109.31 yen on Monday.

All three major USA indexes closed in the black, although they pared gains late in the day and clawed back less than half of Monday's losses, which were the largest one-day percentage drops in months.

Worries over an escalating trade war had hit commodity markets, but improving sentiment sent USA crude 0.1% higher to $61.11 a barrel. Brent crude, the worldwide standard, picked up 29 cents to $70.52 per barrel. Upstart U.K. lender Metro Bank, which has been rocked by accounting mistakes in recent months, dropped 1.4%.

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