The specter of a global trade war sent world stocks tumbling on Friday and drove investors toward the traditional safe plays of government bonds and the Japanese yen.

Europe's STOXX 600 index fell over 1 percent early on, following both Wall Street and Asia down, after Donald Trump said the United States would impose hefty tariffs on imported steel and aluminum.

US Treasury yields fell as they appeared to push aside considerations of inflation, a major theme that spooked global financial markets earlier this year.

LONDON (Reuters) - The specter of a global trade war sent world stocks tumbling on Friday and drove investors toward the traditional safe plays of government bonds and the Japanese yen.

Europe's STOXX 600 index fell over 1 percent early on, following both Wall Street and Asia down, after Donald Trump said the United States would impose hefty tariffs on imported steel and aluminum.

Trump said duties of 25 percent on steel and 10 percent on aluminum would be formally announced next week, sparking concerns of retaliatory moves from major trade partners such as China, Europe and neighboring Canada.

"It is a real worry because Europe is a open global economy so it isn't just about U.S. versus China," with Ian Ormiston, European equity fund manager at Old Mutual Global Investors. "And we will see retaliation there are no two ways about it."

Europe's early drop came amid caution anyway ahead of crunch few days of politics.

Britain's under-fire Prime Minister Theresa May will flesh out her Brexit plans later, while Germany will find out if it finally has a coalition government and Italy holds elections on Sunday.

Combined with the simmering trade war nerves it was unsurprising then that safe-haven demand was on the rise.

U.S. Treasury yields fell as they appeared to push aside considerations of inflation, a major theme that spooked global financial markets earlier this year.

The 10-year U.S. Treasuries yield fell to 2.811 percent, hitting its lowest level in three weeks and further extending the distance from its four-year peak of 2.957 percent touched on Feb 21.

German Bunds - Europe's credit market benchmark - then saw their yields fall to a five-week low of 0.618 percent as Italy's BTP yields dropped to a two-week low of 2.008 percent.

"I am surprised how little risk the market is pricing from this," said the Chief Investment Officer of Pictet Wealth Management Cesar Perez Ruiz, referring to the Italian elections.

Steel buckles

FILE PHOTO: A worker operates a furnace at a steel plant in Hefei Thomson Reuters

The trade nerves had dominated Asian market moves.

Japan's Nikkei tumbled 2.5 percent to end the week down 3.3, while MSCI's broadest index of Asia-Pacific shares excluding Japan dropped 0.9 percent to take its losses for the week to 2.1 percent.

Steelmakers were hit the hardest. ArcelorMittal SA, the world's largest, fell 3.5 percent in Europe, South Korea's Posco lost 3.3 percent and Japan's Nippon Steel ended down 3.8 percent.

Toyota Motor shares had skidded 2.4 percent too after the automaker had said the planned tariffs would substantially raise the production costs and therefore prices of cars and trucks sold in America.

On Wall Street, the S&P 500 had lost 36.16 points, or 1.33 percent, to 2,677.67 on Thursday, coming a day after markets had also sold off heavily on worries the Federal Reserve might increase rates more than expected this year.

The anxiety over tit-for-tat moves was underscored by Canada's quick response, with officials in Ottawa saying they will retaliate.

The concerns also eclipsed upbeat U.S. economic data including a 14-year high in manufacturing figures and a 48-year low in the number of Americans filing for unemployment benefits.

In the currency market, the dollar's rebound following the bullish comments on the U.S. economy from new Federal Reserve Chair Jerome Powell on Tuesday lost momentum.

The euro jumped back to $1.2273, after having hit a seven-week low of $1.21545 on Thursday.

The yen got an additional boost when Bank of Japan Governor Haruhiko Kuroda said he would mull an exit from the BOJ's current stimulus regime if the central bank's 2 percent inflation target is achieved in 2019.

The dollar dropped 0.5 percent to 105.73 yen, edging back toward its 15-month low of 105.545 set on Feb 16.

The dollar index is down 2.1 percent this year, dogged by suspicions that the Trump administration prefers a weaker dollar to help narrow the United States' yawning trade deficit.

Worries that Trump's big tax cuts and spending plans will ramp up fiscal deficits to the extent that they undermine confidence in U.S. debt have also hurt the greenback.

Oil prices were also under pressure, having fallen more than 1 percent the previous day on trade friction fears.

U.S. crude was little changed in late Asian trade at $60.93 per barrel, having fallen to two-week low of $60.18 on Thursday. It is down 3.7 percent so far this week.

Brent futures traded at $63.85 per barrel after having hit a two-week low of $63.19.

"The world stands on the brink of a trade war," said Robert Carnell, head of research, Asia-Pacific at ING in Singapore. "Forget the yield curve - this is how recessions start."