European stock markets sold off sharply on Thursday after China warned that recent tariffs from the US threatened to derail trade talks.

China’s Ministry of Finance said in a statement on Thursday morning that fresh 10% tariffs on $300bn of Chinese goods “seriously violated the consensus” between the US and China reached at the recent G20 meeting in June.

“China will have to take the necessary countermeasures,” the ministry said in a brief statement.

The news set stocks sharply lower. The FTSE 100 (^FTSE) was down 1% in London at just before 11am UK time. The German DAX (^GDAXI) was down 0.9%, having been in the green earlier in the day, and the CAC 40 (^FCHI) was off 0.8% in France.

China appeared to soften its stance somewhat later on Thursday, with a spokesperson for the foreign ministry saying they hoped “a mutually acceptable solution through equal-footed dialogue and consultation with mutual respect.”

That helped US markets avoid a sell-off at the open, although trade was volatile. The S&P 500 (^GSPC) was up 0.2% at 11am New York time, while the Dow Jones Industrial Average (^DJI) was up 0.1%, and the Nasdaq (^IXIC) was flat.

European stocks had eased slightly by the afternoon but all major indexes remained in the red.

Earlier this month US President Donald Trump promised to hit $300bn-worth of Chinese imports with a 10% tariff from the start of September, effectively targeting all Chinese imports to the US. Trump has since delayed the tariff imposition but the threat appears to have soured relations between the two economic super powers.

“Retaliation by China means escalation in tensions, and diminishes the chances of a positive outcome in the near term,” Neil Wilson, chief market analyst at Markets.com, said. “Risks are still to the downside.”

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The “counter measures” statement from China revives fears of a prolonged trade war between the US and China, and adds to an already febrile atmosphere in global stock markets.

US markets sold off sharply on Wednesday after the Treasury yield curve inverted for the first time since 2007. The inversion means investors are now charging more to hold short-term US government debt than long-term, highlight immediate fears about the health of the US economy.

“The market seems to still be experiencing just the sort of tense summer we had anticipated,” Masanari Takada, a macro strategist at Nomura, said in a note to clients on Thursday.

“The magnitude of yesterday's sell-off suggests that panic-selling by longer-term investors was the driving force, rather than trading by algo players. We see a high risk of the market unwittingly launching itself into a pattern of trades that make a recession essentially self-fulfilling.”

Wednesday’s sell-off, which saw all major US indexes close around 3% lower, may explain why stocks in the US have not declined on the statements from China, with investors see value in the depressed share prices.