European and US stock markets sank Wednesday, with investors worried over rising coronavirus infections in several countries as trade tensions between Brussels and Washington rose again.

Updated IMF economic forecasts also hit investor sentiment, with the institution predicting the global economy would contract by 4.9 percent this year and warning the downturn is a "crisis like no other."

Meanwhile, the US said it is considering new taxes on $3.1 billion in European imports amid a dispute over subsidies to planemaker Airbus, just days after the EU indicated it plans to move forward on a digital tax that would primarily hit US tech titans.

"It would appear that President Trump is picking a trade fight with Europe in an effort to distract US citizens from the domestic health situation," said analyst David Madden at CMC Markets UK.

But investors have not been swayed.

"Today we have the combination of rising coronavirus cases in various countries, including the US and Germany, which naturally casts doubt over the ability of countries to continue to reopen and people's willingness to ease their way back to something that resembles normal life," OANDA analyst Craig Erlam told AFP.

"Both of these are a considerable threat for businesses and employment. Add to that the trade aggression from the US towards Europe at the worst possible time... and investors are understandably unsettled."

Stock markets, which have rebounded strongly from March lows, on Wednesday suffered one of their worst sessions since those dark days.

European bourses dove around three percent, while the Dow shed 2.7 percent, or more than 700 points, to finish at 25,445.94.

Investors are nevertheless walking a tightrope between hopes the easing of restrictions will lead to an economic rebound and the possibility that the relaxation will inflame the pandemic again.

Numerous states in the western and southern United States have reported record coronavirus cases in recent days, prompting more local officials and private companies to freeze reopenings or retreat from prior steps to relaunch activity.

Texas Governor Greg Abbott said in a television interview that the "safest" place for residents was home unless they had to go out, while Apple said it was reclosing stores in Houston, the state's biggest city.

The governors of New York, Connecticut and New Jersey announced they would impose a mandatory 14-day quarantine to people traveling to their states from areas with high COVID-19 infection rates.

Elsewhere, Tokyo governor Yuriko Koike warned a number of new cases had been found at one workplace, while Germany reimposed containment measures in two western districts -- home to almost 640,000 people -- after an outbreak at a slaughterhouse infected more than 1,500 workers.

"Reopening optimism is showing signs of fading," noted City Index analyst Fiona Cincotta.

Britain will allow cinemas, pubs and restaurants to open again from July 4, but there are worries on markets that the easing of lockdowns across the planet could lead to a fresh round of virus infections Britain will allow cinemas, pubs and restaurants to open again from July 4, but there are worries on markets that the easing of lockdowns across the planet could lead to a fresh round of virus infections Photo: AFP / JUSTIN TALLIS

Oil prices plunged more than five percent after data showed that stocks of crude oil hit a record high in the US for the second straight week.

New York - Dow: DOWN 2.7 percent at 25,445.94 (close)

New York - S&P 500: DOWN 2.6 percent at 3,050.33 (close)

New York - Nasdaq: DOWN 2.2 percent at 9,909.17 (close)

London - FTSE 100: DOWN 3.1 percent at 6,123.69 (close)

Frankfurt - DAX 30: DOWN 3.4 percent at 12,093.94 (close)

Paris - CAC 40: DOWN 2.9 percent at 4,871.36 (close)

EURO STOXX 50: DOWN 3.1 percent at 3,196.12 (close)

Tokyo - Nikkei 225: DOWN 0.1 percent at 22,534.32 (close)

Hong Kong - Hang Seng: DOWN 0.5 percent at 24,781.58 (close)

Shanghai - Composite: UP 0.3 percent at 2,979.55 (close)

West Texas Intermediate: DOWN 5.8 percent at $38.01 per barrel

Brent North Sea crude: DOWN 5.4 percent at $40.31 per barrel

Euro/dollar: DOWN at $1.1251 from $1.1308 at 2100 GMT

Dollar/yen: UP at 107.05 yen from 106.52

Pound/dollar: DOWN at $1.2418 from $1.2520