Fears of steep U.S. punitive tariffs on the European Union (EU) sent the DAX tumbling on Friday.

Germany's benchmark index, which had climbed to new record highs earlier in the week, dropped 1.2 percent to 24,166 points. The EuroStoxx50 slipped by one percent. "The sip from the bottle at levels above 24,600 points ultimately proved too much," remarked Jürgen Molnar of RoboMarkets. Investors are now opting to lock in some profits, he added.

The EU faces the threat of new blanket tariffs from the United States. U.S. President Donald Trump announced plans to impose duties of 15 or 20 percent on most trading partners. The EU and Canada could receive official notification as early as Friday, Trump told NBC News on Thursday (local time). For Canadian goods, Trump is targeting a 35 percent tariff starting August 1. "The optimism from earlier in the week, with the DAX hitting a new record, is giving way to fears of a nasty tariff surprise before the weekend," said Jochen Stanzl of CMC Markets. Thomas Altmann from asset manager QC Partners also warned, "Tariffs still have the potential to massively slow down global trade and corporate profits." Investors should remain mindful of this, despite growing accustomed to such risks.

GOLD IN DEMAND AS SAFE HAVEN

The renewed risk appetite among many investors had propelled the DAX to a record high of 24,639.10 points on Thursday. Over the week, the German index gained 1.7 percent. On Friday, however, investors favored perceived safe havens like gold. The precious metal rose as much as 0.7 percent to $3,346 per troy ounce. The dollar index also gained 0.2 percent to 97.82. The euro, in contrast, lost ground, slipping 0.3 percent to $1.1666. The potential escalation of the trade conflict between the EU and the U.S. is a major issue for financial markets and could prove highly destabilizing, said Joseph Capurso of the Commonwealth Bank of Australia. Similarly, industrial commodities such as oil and copper saw little to no demand amid mounting economic and tariff concerns.

Meanwhile, investors in the crypto market remained unfazed. The risk-laden digital currency Bitcoin edged closer to the $120,000 mark, rising as much as 4.6 percent to $118,832. Since the start of the year, Bitcoin has gained around 25 percent. Inflows into exchange-traded Bitcoin spot ETFs and a crypto-friendly regulatory environment in the U.S. continue to drive price speculation, noted Timo Emden of Emden Research.

FINANCIAL STOCKS WEAKEN

On the corporate front, only RWE and Siemens Energy managed to remain marginally in positive territory on the DAX. Among the biggest losers were economically sensitive financial stocks. Shares in Commerzbank and Deutsche Bank each fell by two percent. Norway's DNB Bank slid nearly eight percent after reporting lower-than-expected quarterly profits. The European banking sector as a whole dropped 1.8 percent.

In contrast, BP shares gained ground, rising as much as 3.1 percent at times on the London Stock Exchange. The energy giant expects oil and gas production in the second quarter to surpass the first quarter's output.

(Reporting by: Daniela Pegna, edited by Ralf Banser. For inquiries, please contact our editorial teams at berlin.newsroom@thomsonreuters.com (for politics and economy) or frankfurt.newsroom@thomsonreuters.com (for companies and markets).