Stock markets were in gloomy mode Tuesday as China, Mexico and Canada hit back at US tariffs and fears grew that Europe could be President Donald Trump's next target in the growing global trade war.

Wall Street stocks tumbled for a second straight session while European markets closed down sharply amid worries a prolonged trade spat may knock the world economy out of kilter.

Frankfurt plunged more than 3.5 percent for its worst session in almost three years, while London shed 1.3 percent and Paris gave up 1.9 percent. 

"The headlines surrounding an impending global trade war have become too loud to ignore on the once-booming trading floor of Frankfurt," noted Konstantin Oldenburger, analyst at CMC Markets.   

"The sounds of trade disruptions are growing louder and are becoming increasingly difficult to ignore, even though Trump has yet to impose any direct tariffs against Germany or the European Union."

Of the 11 industrial sectors in the S&P 500, 10 finished in negative territory, with technology flat.

The biggest losers in the Dow included Boeing, which slid 6.6 percent, 3M, which dropped nearly five percent and American Express, which sank 4.1 percent.

"The longer the tariffs last or are in effect, the longer that this market will decline," Sam Stovall of CFRA Research said.

"Investors are worried that we are headed for a recession and a bear market." 

US tariffs of 25 percent for Canadian and Mexican goods came into effect on Tuesday along with the doubling of levies on Chinese imports to 20 percent. The three countries announced retaliatory moves.

"The US administration is continuing to cause even more global upheaval and overnight by far the broadest set of tariffs yet has come into effect," said Deutsche Bank analyst Jim Reid.

But Reid added "there is still some market doubt as to whether all these tariffs will persist for a prolonged period of time."

The European Union warned that the tariffs on Canada and Mexico risk "disrupting global trade," and urged Washington to reverse course.

"These tariffs threaten deeply integrated supply chains, investment flows, and economic stability across the Atlantic," said EU trade spokesman Olof Gill.

Amid fears the EU will be the next target, French Economy Minister Eric Lombard insisted that the bloc would be tough in negotiations.

"We have negotiators who are playing hardball, we will play hardball but... we need to reach a balanced deal to protect our economies," Lombard said.

China congress and eurozone rates

Traders have their eyes on other major economic events this week.

Investors hope China will announce a huge economic stimulus package at its annual parliamentary meeting, the National People's Congress.

On Thursday, the European Central Bank is expected to cut interest rates again to try to boost a floundering eurozone economy.

The key scheduled economic event Friday will be US jobs data.

Key figures as of 2130 GMT

New York - Dow: DOWN 1.6 percent at 42,520.99 (close)

New York - S&P 500: DOWN 1.2 percent at 5,778.15 (close)

New York - Nasdaq Composite: DOWN 0.4 percent at 18,285.16 (close) 

London - FTSE 100: DOWN 1.3 percent at 8,759.00 (close)

Paris - CAC 40: DOWN 1.9 percent at 8,047.92 (close)

Frankfurt - DAX: DOWN 3.5 percent at 22,326.81 (close) 

Tokyo - Nikkei 225: DOWN 1.2 percent at 37,331.18 (close)

Hong Kong - Hang Seng Index: DOWN 0.3 percent at 22,941.77 (close)

Shanghai - Composite: UP 0.2 percent at 3,324.21 (close)

Euro/dollar: UP at 1.0611 from $1.0487 on Monday

Pound/dollar: UP at $1.2789 from $1.2701 

Dollar/yen: UP 149.75 from 149.50 yen

Euro/pound: UP at 82.96 pence from 82.57 pence 

West Texas Intermediate: DOWN 0.2 percent at $68.26 per barrel

Brent North Sea Crude: DOWN 0.8 percent at $71.04 per barrel