By Amy Caren Daniel
(Reuters) - European shares retreated on Tuesday from two-month highs hit in the previous session, as U.S.-China trade talk euphoria subsided and Washington's latest tariff threats on $4 billion (£3 billion) of additional EU goods held back market gains.
Days after reaching a truce in the U.S.-China trade war, the U.S. government on Monday ratcheted up pressure on Europe by releasing a list of additional products - including olives, Italian cheese and Scotch whiskey - that could be hit with tariffs.
Planemaker Airbus (PA:AIR) fell 0.6% as further tariff threats become the latest salvo in a long-running dispute over aircraft subsidies.
The pan-European STOXX 600 index (STOXX) rose 0.10% by 0706 GMT, with the trade-sensitive auto sector (SXAP) tumbling 0.72%.
"We've got the trade spat resurfacing between the U.S. and EU, which is reiterating Trump's protectionist stance on trade, and that is obviously not the kind of news you want to hear," said Florian Hense, European economist at Berenberg in London.
"The uncertainty about what could still come on trade causes confidence to fall and investors to hold back on their investment, which is a driver in markets today."
Global stock markets rallied on Monday, with the STOXX 50 index (STOXX50) hitting its highest level since February 2018, after the United States and China restarted trade negotiations over the weekend after a long pause.
The STOXX 600 index had its worst performance in more than two years in May after a sudden escalation in U.S.-China trade tensions, but stocks recouped most of their losses since then on hopes that major central banks would be more accommodative to counter the impact of the dispute.
However, U.S. President Donald Trump said on Monday that any trade deal with China would need to be "somewhat tilted" in favour of the United States putting a damper on sentiment.
The defensive healthcare sector took the lead in the main index, helped by Galapagos' shares (AS:GLPG), which jumped 6% after the drugmaker announced it would submit its drug filgotinib as a treatment for rheumatoid arthritis to the FDA this year.
Jupiter Fund Management (L:JUP) dropped 6.4% after the company said it is considering naming Devon Equity as an adviser for its European Opportunities Trust.