European stocks slide amid trade war, political worries; Stoxx 600 hits 2.5-month low

European shares continued to tumble Wednesday amid worries over the U.S.-China trade war and a potential budget standoff between Italy and the EU.

The pan-European STOXX 600 fell 1.2% to its lowest point since March 11, basic resources leading the losses with a 2% decline as all sectors tumbled during the morning session. Technology, construction and materials, retail and bank stocks were all down more than 1.5% during the morning session.

Traders are taking a more cautious approach to risk assets, with the trade battle between Washington and Beijing proving to be a main point of anxiety for global markets.

President Donald Trump said earlier this week that his administration was “not ready” to make a deal with China, adding tariffs on the country’s imports could go up “substantially.”

Meanwhile, a Chinese official hinted Tuesday that Beijing could use its strength in rare earth minerals as leverage in its trade dispute with the U.S.

Back in Europe, fears of a coming political battle between Rome and Brussels returned this week as reports emerged stating the EU is considering disciplinary action over the Italian government’s failure to rein in debt.

Italy’s Deputy Prime Minister Matteo Salvini has said Rome could be targeted with a 3 billion euro ($3.3 billion) fine for accumulating debt and a deficit that breaks the bloc’s rules.

A European official told CNBC he could not confirm whether Italy would be slapped with a hefty fine, but said the EU executive had “some concerns” about the country’s fiscal trajectory.

Also weighing on European investors was disappointing economic data. An indicator of German consumer sentiment fell to its lowest level in two years on Tuesday.

In other economic news, the European Central Bank published its biannual review of financial stability, warning of further market volatility due to the risks arising from trade wars and weak economic growth.

In terms of individual stocks, Swedish radiation company Elekta jumped 17% during the morning session after a strong set of fourth-quarter earnings, while shares of German IT company Bechtle fell 6.2%.