European stocks drop the most in two months on Trump tariff threat over Greenland

By Niket Nishant and Johann M Cherian

Jan 19 (Reuters) - European shares logged their biggest daily drop in two months on Monday as investors were rattled by President Donald Trump's threat of additional tariffs on eight European countries until the U.S. is allowed to buy Greenland.

The pan-European STOXX 600 .STOXX fell 1.2%, with benchmarks in export-heavy economies such as Germany .GDAXI and France .FCHI down over 1.3% each.

Trump said he would impose an additional 10% tariff starting February 1 on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and Britain, rising to 25% on June 1 if no deal is reached.

The threats triggered a sharp pushback in Europe, with the reaction reminiscent of the volatility seen when Trump imposed tariffs on global economies last April. His remarks also raised questions on the outlook of trade deals struck since then with Europe.

EU LIKELY TO BE CAUTIOUS IN RETALIATION -ANALYST

Global leaders and corporate executives are at the World Economic Forum in Davos, comments at which will be scrutinised for tariff cues and geopolitical signals.

"We doubt that (the tariffs) will be implemented as advertised," said Andrew Kenningham, chief Europe economist at Capital Economics, adding he believed the EU would be cautious with any retaliation "to avoid further escalation."

Trade uncertainty nearly halved German companies' investments in the U.S. in the first year of Trump's second term, according to a German Economic Institute (IW) report seen by Reuters.

LUXURY AND AUTOS PLUNGE, VOLATILITY RISES

Luxury .STXLUXP, automobile .SXAP and technology stocks .SX8P were among the biggest losers, slipping 3%, 2.2% and 2.9%, respectively.

A gauge for euro zone equity volatility .V2TX jumped 3.75 points to its highest since November.

"Trump's actions over the weekend have inflamed geopolitical risks while also reintroducing trade uncertainty. After a low-volatility start to the year, equities may experience some downside pressure," said Kyle Rodda, senior financial market analyst at Capital.com.

Market reaction could also be exaggerated due to thin trading volumes because of the Martin Luther King Jr. Day holiday in the U.S.

Bucking declines, Beazley rocketed nearly 43% after Zurich Insurance Group announced a 7.67 billion pound ($10.3 billion) all-cash offer to buy the UK speciality insurer.

Pharmaceuticals and agriculture group Bayer BAYGn.DE rose 7.1% to its highest since October 2023 after the U.S. Supreme Court agreed to hear its bid to limit lawsuits claiming that its Roundup weedkiller caused cancer.