European stocks were hit Wednesday by US President Donald Trump's threat to slap auto tariffs on EU-built cars and a gloomy auto sales forecast.

Markets in London, Frankfurt and Paris closed lower after Trump said he would order a 25-percent sucharge on European cars if the EU did not agree to a trade deal.

Analysts at Charles Schwab brokerage described traders as fairly cautious as the region mulled "the possibility of a showdown between Europe and the US".

As trading wound down in Europe, the auto sector association ACEA contributed to the wary mood with a forecast that European new car sales would fall by two percent this year, their first decline in seven years.

Shares in carmakers Volkswagen slid by 1.2 percent and Daimler lost more than two percent, with Mercedes-parent Daimler also warning that its 2019 earnings could fall short of expectations owing to massive new charges related to diesel emissions cheating.

Before Trump issued his latest trade threats, Frankfurt's DAX 30 index had hit a record high at 13,640.06 points, with dealers hailing a recent China-US trade deal.

"German companies are among the most exposed to global trade worries, and therefore those enjoying the biggest bounce since US-China relations improved at the back end of last year, resulting in this month's trade deal," said Markets.com analyst Neil Wilson.

In Davos, Switzerland, European Commission President Ursula von der Leyen highlighted prospects for a wider trade truce, saying that an accord between Europe and the United States was also possible within weeks.

US stock markets were in positive territory in midday trading, while oil prices fell on fears of a glut on the market after Brazil's energy minister forecast record output this year.

Earlier in the day, Asian markets had bounced back on bargain-buying following sharp losses on Tuesday that were triggered by fears over the spread of the deadly coronavirus.

"Fears of the spreading coronavirus appear to be easing a bit after China said it is taking steps to contain the virus," Schwab analysts said.

Global equities have been roiled this week by fears that the Chinese virus outbreak which has killed nine and sickened hundreds, could cause as much economic damage as the SARS epidemic that left hundreds dead in 2003.

The World Health Organization was meeting Wednesday to determine whether to declare a global public health emergency over the disease, which has also been detected in Thailand, Japan, South Korea, Taiwan and the United States.