EUROPEAN indices have been knocked as the trade war between Donald Trump and China continued to escalate.

Mr Trump is gearing up to impose a 10 per cent tariff on around $200 billion worth of Chinese imports, rocking confidence in both the US and globally.

The FTSE 100 was down 27.48 points by the market close at 7603.85, although the index fared better than its European peers.

Fiona Cincotta, senior market analyst at City Index, said: "For weeks, the market has been relatively complacent that Trump's tough protectionist rhetoric were merely a negotiating tool; however, the realisation that the US president is willing to go ahead with his threats has sent a shiver through the markets.

"Risk is being taken off the table with equities taking a hit."

Germany's Dax suffered, with losses fuelled in part by turmoil in its domestic politics. The index was down 1.2% to 12677.97.

The Cac in France was down by as much as 1.1% to 5390.63 towards the end of the day.

In oil markets, volatility ahead of a key meeting of the Organisation of Petroleum Exporting Countries took its toll on Brent crude, with prices falling by 0.78% to $74.863 per barrel.

The strength of the US dollar put pressure on sterling throughout the day. In the afternoon, the pound was down 0.54% against the dollar at 1.317.

Against the euro, the pound was flat at 1.138.

Meanwhile, retail stocks took a hit as more bad news emerged from the sector.

Debenhams shares plunged 10.7% or 2.1p to 17.5p after it issued its third profit warning this year, saying market weakness and competitor discounting had hit sales.

Meanwhile, Premium sports retailer Footasylum saw its stock market value halved after warning over annual earnings. Shares in the recently-floated group plummeted 52% or 87.5p by the market close to 80p.

There was some good news for retailers as Bonmarche rung up a surge in annual profits, which were up 38.1% to £8 million for the year. Shares jumped 11% or 11.5p to 114p.

Equipment rental group Ashtead booked rising annual sales and profits off the back of surging demand in the US due to the damage caused by Hurricanes Harvey, Irma and Maria.

The company saw pre-tax profits jump 16% to £862.1m. However, the results were slightly below analysts' expectations, sending shares down 4.43% or 105p to 2,267p.

Flybe managed to limit its losses, bringing higher sales and customer numbers for the year despite operating in a "challenging" environment for airlines.

The company reported a pre-tax loss of £9.4m for the year ended March 31 2018, an improvement on its £48.5m loss the year before. Shares closed the day 1.7p lower at 38.2p.

Retirement housebuilder McCarthy & Stone has seen shares tumble 17% or 22.3p to 108.2p after it warned over full-year earnings and said its boss will leave in August.

The builder is braced for lower-than-expected profits for the year to August 31 after a slowdown in sales reservations amid uncertainty caused by Brexit and weaker property prices.

Hornby shares also plunged 17% when the ailing toymaker reported wider full-year losses, with pre-tax losses coming in at £10.1m for the year to March 31, having grown from losses of £9.5m a year earlier.

The company blamed former leadership for poor decisions that caused its famous brands to "fall from grace". By the close, shares were down 4.4p to 21p.

The biggest risers on the FTSE 100 were Just Eat up 19.6p to 806.6p, Ferguson up 110p to 6,000, Royal Mail up 7.8p to 512.4p and British American Tobacco up 56p to 3,691p.

The biggest fallers on the FTSE 100 were DS Smith down 24.6p to 525p, Ashtead Group down 105p to 2,267p, Evraz down 22.6p to 515.6p and Burberry down 80p to 2,085p.