Global stock markets staged a sharp sell-off on Monday amid growing concerns over a budget showdown between Italy and the EU and the prospect of weaker growth in the Chinese economy.

Italian borrowing costs jumped and the euro dropped on foreign exchanges as the war of words between Rome and Brussels escalated, while shares on Wall Street and other major international markets declined amid growing concerns over the US-China trade war.

Italian bond yields jumped by as much as 30 basis points to the highest levels since early 2014 after the Italian deputy prime minister, Matteo Salvini, attacked the European commission president, Jean-Claude Juncker, and the economics commissioner, Pierre Moscovici, as enemies of Europe.

Speaking at a news conference with the French far-right leader Marine Le Pen, he said the country would not cave to pressure from the financial markets or retreat from its plan for government spending. “We are against the enemies of Europe — Juncker and Moscovici — shut away in the Brussels bunker,” he said.

Brussels has told Italy it is concerned over the plan because it would mean the nation running a larger budget deficit – the gap between income from taxes and government spending – than previously planned for the next three years.

Rome is to submit its draft budget to the commission, the EU’s executive arm, which will check whether it is in line with EU rules by 15 October.

The euro fell almost 0.5% against the dollar, while the Italian stock market dropped by 2.4%. The FTSE 100 closed down more than 1% at 7,233.33 while other markets around Europe also recorded losses.

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Investors worry that Italy’s expansionary budget plan, which was published last week, may backfire on its populist government, as it has potential to drive up the cost of borrowing and add to its debt pile, which is already the largest as a percentage of GDP in the eurozone behind Greece.

The Dow Jones Industrial Average dropped in afternoon trading in New York amid a wider sell-off that analysts blamed on investor concerns over the US-China trade war and its potential impact on Chinese economic growth, but it rallied at the close to finish up 0.15% at 26,486.78.