The specter of a global trade war returned to haunt investors at the close of the week.

European stock markets slumped by as much as three percent at times on Friday after U.S. President Donald Trump shocked investors with tariff threats targeting both Apple and the European Union. At the same time, demand surged for safer assets such as gold. Bond yields fell as prices rose, and the U.S. dollar took another hit.

Trump threatened the European Union with tariffs of 50 percent on goods starting June 1. He described trade talks with the EU as difficult. "The suspension of tariffs was always just a ceasefire, not a peace agreement," said Neil Wilson, a strategist at Saxo Markets. "The markets have been far too complacent." The EuroStoxx50 fell 1.9 percent on Friday, while Germany's DAX closed 1.5 percent lower at 23,629 points. Earlier in the week, hopes for further trade deals had pushed the DAX above the 24,000-point mark for the first time. On a weekly basis, the DAX posted a 0.6 percent loss. U.S. indices were down about one percent.

Trump's escalating rhetoric strongly echoes his approach with China--a tactical move likely to result in a milder outcome, said Nuveen strategist Laura Cooper. "Initial overreactions in the markets may subside, as it is unlikely that Europe will ultimately face higher tariffs than China," she added. However, ongoing political uncertainty will continue to fuel market volatility.

APPLE IN THE CROSSHAIRS - CHIP STOCKS WEAKEN

European semiconductor stocks took a hit after Trump set his sights on Apple. The president wrote on his Truth Social platform that Apple would have to pay a 25 percent tariff if iPhones sold in the U.S. were not also manufactured there. Trump has previously demanded that Apple bring iPhone production back to the U.S. Apple shares dropped 2.3 percent.

Shares of iPhone supplier STMicroelectronics fell 4.2 percent. Other sector players were also caught in the downward spiral: Besi shares dropped 2.6 percent, Infineon 3.8 percent, and ams-OSRAM 5.3 percent.

Export-dependent automakers also came under pressure on the stock exchange. Shares of German manufacturers Mercedes-Benz, BMW, Volkswagen, and Porsche fell between three and four percent.

European luxury goods companies were also affected. Hermes shares lost 2.6 percent, while Richemont, LVMH, Kering, and Christian Dior fell between 1.3 and 2.3 percent. Hugo Boss shares were down 1.4 percent.

GOLD PRICE SURGES - U.S. DEBT WORRIES INVESTORS

Concerns over the tariff dispute and the U.S. budget boosted the price of gold. The yellow metal rose as much as 2.1 percent to $3,364 per troy ounce, putting it four percent above last week's close--the biggest weekly gain in over a month. According to UBS analyst Giovanni Staunovo, investors fear that tax cuts could further worsen the U.S. fiscal situation and weaken the dollar. This has prompted some investors to shift from the dollar into gold. The dollar index fell 0.5 percent and dropped nearly two percent over the week. U.S. markets will be closed on Monday for a holiday.

(Reporting by Anika Ross; Edited by Scot W. Stevenson; For questions, contact our newsroom at berlin.newsroom@thomsonreuters.com (for politics and economics) or frankfurt.newsroom@thomsonreuters.com (for companies and markets).)