North American markets closed significantly lower on Friday, failing to bounce back from steep losses this week as concerns about the start of a potential global trade war between the world's two biggest economies intensified selling in the final hour of trading.

In New York, the Dow Jones industrial average lost 1.8 per cent or 425 points to 23,533, while the broader S&P 500 index fell 2.1 per cent to 2,588 points.

The tech-heavy Nasdaq composite ended lower by 2.4 per cent to 6,993 points.

The losses for the week were even larger with the Dow losing 5.7 per cent, the S&P 500 down almost six per cent, while the Nasdaq plunged 6.5 per cent.

All three benchmark indexes saw their biggest weekly percentage decline since January 2016.

Trade war fears heightened after China responded to U.S. President Donald Trump's plan on Thursday to put tariffs on up to $60 billion of Chinese goods by announcing plans of its own to hit up to $3 billion of U.S. imports with tariffs.

But the Asian giant also urged the U.S. to "pull back from the brink" in order to avoid a trade war.

"China doesn't hope to be in a trade war, but is not afraid of engaging in one," China's commerce ministry said in a statement. "China hopes the United States will pull back from the brink, make prudent decisions, and avoid dragging bilateral trade relations to a dangerous place."

Then in another surprise move on Friday afternoon, Trump signed the new $1.3 trillion spending bill passed by Congress to avert a shutdown of the U.S. government just hours before federal funding was set to expire after earlier threatening to veto the bill.

"I will never sign another bill like this again," he continued to threaten at a press conference at the White House after the signing.

Markets 'more affected'

Andrew Kenningham, chief global economist at research firm Capital Economics said that while the economic impact of the tariffs announced by Trump will be small even if they are implemented in full, the "protectionist announcements and actions may continue to weigh on investor sentiment."

"In short, markets will be more affected than the economy," he said. "At face value, the tariffs on China would cover less than three per cent of total U.S. goods imports, similar to those on steel and aluminum.

"We think the biggest fallout will continue to be for equity markets. Markets which are likely to be among the worst affected include those which are reliant on supply chains linked to China, notably Taiwan, as well as companies which could be hit by Chinese retaliation," he added.

Asian markets had closed sharply lower on Friday, with the region's biggest market — Japan's Nikkei 225 index — plunging 4.5 per cent, while Hong Kong's Heng Seng fell 2.5 per cent. Mainland Chinese shares tumbled with the benchmark Shanghai Composite losing 3.4 per cent.

"Global equity market sentiment remains downbeat as U.S. tariffs aimed at China have flared tensions between the two nations and prodded concerns of a broader escalation," said Carl Campus, economist at BMO Capital Markets in a note.

Inflation heats up

Canadian shares, meanwhile, saw their biggest weekly loss since early February after economic data showed that inflation rose to the fastest pace in three years, putting pressure on consumer-related stocks.

Consumer prices went up at an annual pace of 2.2 per cent in February due to increases in energy prices. That is the highest level since 2014.

The S&P/TSX Composite Index lost 1.1 per cent to 15,224 points, but for the week was down over three per cent.

Health-care stocks were among the few gainers led by marijuana companies.

Shares of the country's largest marijuana producer — Canopy Growth — jumped over five per cent after the government moved closer to legalizing recreational use by this summer.

Investors fleeing to the safety of gold, which was trading at its highest in over a month, also boosted material stocks, with Barrick Gold up 2.6 per cent.

The Canadian dollar was also higher on the inflation data, closing at a trading average of 77.78 cents US, up from an average price of 77.47 cents on Thursday.