Tokyo: US Treasury Secretary Scott Bessent sought to soothe investor nerves Tuesday as global markets sold off sharply following President Donald Trump’s threat to impose sweeping tariffs on European nations over their opposition to American control of Greenland.

Speaking on the sidelines of the World Economic Forum annual meeting in Davos, Switzerland, Bessent asserted that America’s relations with Europe remain strong. He urged trading partners to "take a deep breath" and let tensions driven by the tariff threats over Greenland "play out".

Also read: Silver hits record on MCX as Trump’s Greenland tariff threat sparks US-EU trade fears

Markets, however, reacted nervously to the escalating geopolitical dispute.

US futures fell steeply, while European stock indices shed more than 1%. France’s CAC 40 slipped 1.2% to 8,014.42, Germany’s DAX lost 1.5% to 24,581.44, and Britain’s FTSE 100 dropped 1.3% to 10,068.04. The future for the S&P 500 sank 1.8%, while that for the Dow Jones Industrial Average fell 1.6%.

The selloff follows Trump’s announcement that he would charge a 10% import tax starting in February on goods from Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland, citing their opposition to American control of Greenland.

Trump’s threats have sparked outrage and a flurry of diplomatic activity across Europe, as leaders consider possible countermeasures, including retaliatory tariffs and the first-ever use of the European Union’s anti-coercion instrument.

Also read: US’s biggest fear, EU’s best weapon: How Europe’s $8 trillion leverage could rattle Washington

Asian markets also traded lower. Japan’s Nikkei 225 lost 1.1% to 52,991.10 after Prime Minister Sanae Takaichi called a snap election for Feb. 8. Yields on long-term Japanese government bonds surged after Takaichi signaled plans to dissolve parliament and seek a renewed electoral mandate, raising expectations of increased government spending. The yield on the 40-year government bond surged to a record 4%.

Chinese markets were mixed. Hong Kong’s Hang Seng gave up 0.3% to 26,487.51, while the Shanghai Composite ended nearly unchanged at 4,113.65. South Korea’s Kospi dropped 0.4% to 4,885.75, and Australia’s S&P/ASX 200 lost 0.7% to 8,815.90. Taiwan’s Taiex gained 0.4%, while India’s Sensex declined 0.8%.

"Geopolitical events will remain in focus today, particularly any talks that may take place in Davos," said Michael Brown, a senior research strategist at Pepperstone.

Investors are also watching upcoming US corporate earnings and fresh inflation data preferred by the Federal Reserve for policymaking. The Fed’s next policy meeting is in two weeks and is expected to keep interest rates unchanged as it balances a cooling job market with inflation still above its 2% target. The Bank of Japan’s policy board meeting concludes later this week.

In commodities trading, US benchmark crude oil lost 49 cents to $58.95 per barrel, while Brent crude shed 33 cents to $63.61 a barrel.

In currency markets, the US dollar slipped to 157.83 Japanese yen from 158.09 yen. The euro rose to $1.1716 from $1.1645.

Gold hits new high

Gold, seen as a safe-haven investment, notched yet another record high, at $4,726.70 an ounce. Silver also peaked, touching $95.51 an ounce.

The dollar retreated, and key bond yields in the United States and elsewhere climbed.

"The US dollar is not serving as a safe haven because it seems to be entirely US-driven and raises fears about US policy and European exposure to US assets," noted Neil Wilson, investor strategist at Saxo UK.

When Wall Street reopens, the "Nasdaq looks set to chalk up the biggest declines amid concern about possible retaliatory action from Europe against America's big tech contingent", predicted AJ Bell investment director Russ Mould.

Frankfurt led losses in Europe, shedding 1.5 percent in midday deals. There were sizeable falls also in London and Paris.