European stocks close week lower on Trump's EU, Apple tariff threats

By Sruthi Shankar, Medha Singh, Ragini Mathur and Purvi Agarwal

May 23 (Reuters) - European shares closed sharply lower on Friday after U.S. President Donald Trump ramped up threats of tariffs on the European Union and smartphone giant Apple, reigniting fears of a damaging global trade war.

Trump said he is recommending a straight 50% tariff on goods from the EU starting on June 1, which would result in stiff levies on luxury items, pharmaceuticals and other goods. He also threatened Apple with a 25% tariff on any iPhones sold, but not manufactured, in the United States.

"This latest move threatens a full-scale escalation of the global trade war. European markets will suffer, undoing some of the strong momentum we have seen in recent months," Lindsay James, investment strategist at Quilter, said.

"What happens next is anyone's guess, but it is unlikely the EU simply rolls over following this latest development."

The pan-European STOXX 600 index .STOXX closed 0.9% lower, and marked a weekly decline, its first in six. The index logged its biggest one-day fall since April 9.

A gauge of euro zone stocks .STOXXE took a sharper 1.5% hit, with declines on London's FTSE 100 .FTSE contained, as the country clinched a trade deal with the U.S. earlier this month.

The Euro STOXX Volatility index .V2TX spiked to its highest in more than three weeks.

The STOXX 600 had recovered from its early April slump after trade deals between the U.S. and some trading partners had calmed worries over trade tensions.

On Friday, automobiles and parts .SXAP, expected to take the biggest hit from tariffs, led broader declines with a 3.1% fall. Economically-sensitive banks .SX7P shed 1.8%, while an index of luxury goods .STXLUXP dropped 2.7% as they are highly exposed to the U.S. market.

Germany's DAX .GDAXI fell 1.5% after coming within spitting distance of a record high earlier in the day when data had shown that the country's economy grew significantly more in the first quarter than previously estimated.

Indexes in France .FCHI, Spain .IBEX and Italy .FTMIB, were down more than 1% each.

The benchmark 10-year European government bond yield DE10YT=RR dropped along with its U.S. counterpart US10YT=RR on raised concerns about slowing economic growth. GVD/EUR

Traders bet on more interest rate cuts from the European Central Bank, expecting the deposit rate to reach 1.60% by December from 1.72% before Trump's comments.

British investment platform AJ Bell AJBA.L jumped 8.4% after it posted a 12% year-over-year rise in half-yearly profit before tax, benefiting from increased client activity.